Coffee Market Report November 15 2017

The coffee markets remain devoid of striking fundamental news and by nature, this silence tends to underpin that aside from the dip in Brazil arabica coffee production this year, it is very much business as usual for the global producers at present.   This including the news of reasonable rains so far for the spring and summer rain season over the coffee districts in Brazil, which point towards an improved new crop to come into play next year.   With the new crop conilon robusta coffees already due to start impacting upon market supply by May 2018 and the new crop arabica coffees, by July 2018.  

Meanwhile today is Proclamacão da Repúplica Day or Republic Day, which shall keep Brazilian price fixation hedge selling away from the New York market, which with the Brazil Real having weakened and presently trading at 3.31 to the U.S. dollar, would have been seen to be a negative factor for market sentiment.   But it is not only the potential for Brazilian arabica coffee price fixation hedge selling that casts a cloud over the New York, as following the smaller crop this year shall be somewhat muted, as there comes a threat from the potential rising volumes of new crop Mexican, Central American and Colombian hedge selling activity. 

This latter activity that is already a factor from Colombia and shall become particularly threatening by January next year, by when there shall be significant volumes of new crop Mexican and Central American coffees needing to be priced.   Keeping in mind that if there is no significant improvement in the reference prices of the New York market by then, that the lower prices coming to these high volume fine washed arabica coffee producers shall limit their ability to finance the carry of their new crop coffee stocks and with a need to recover cash, might force many farmers to be relatively aggressive sellers. 

But in the end, it is not the producers who are the determining factor but the funds and the speculative sector within the market, who are significantly short sold into the market and have the potential to very quickly manipulate the market, albeit that the down side with such net short positions already in hand, is limited.    They could should is stop raining in Brazil for a few weeks, very quickly start short covering and move the market north, but so far there are no indications that there are potential problems for Brazil and this might become the case.  

The March 2018 to March 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 48.21 usc/Lb., while this equates to 36.96% price discount for the London Robusta coffee market.   

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 470 bags yesterday; to register these stocks at 1,910,342 bags.  There was meanwhile a larger in number 967 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 36,293 bags. 

The Certified Robusta coffee stocks held against the London exchange were seen to increase by 4,667 bags or 0.22% over the week of trade leading up to Monday 13th. November, to see these stocks registered at 2,146,833 bags, on the day.  

The commodity markets were mostly tending softer yesterday and this was despite the marginally softer U.S. dollar, with the overall macro commodity index taking a softer track for the day.  The London robusta Coffee, Orange Juice, Wheat, Gold and Silver markets had a day of buoyancy, while the Oil, Natural Gas, Sugar, Cocoa, New York arabica Coffee, Cotton, Copper, Corn and Soybean markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.86% lower, to see this Index registered at 419.10.  The day starts with the U.S. Dollar steady and trading at 1.314 to Sterling and at 1.179 to the Euro, while North Sea Oil is tending softer and is selling at US$ 60.90 per barrel. 

The London and New York markets started the day yesterday trading with a degree of buoyancy and marginally north of par, but with both markets dipping back to trade around par by early afternoon trade.   As the afternoon progressed the London market slipped back marginally below par and the New York market maintained a degree of buoyancy, before adding value and taking a positive stance and followed by a similar positive stance within the London market.  But the recovery was short lived for the New York market and with the market slipping back below par it attracted sell stops and sharp losses, while the London market shrugged off this negative influence and maintained a steady positive track, which was followed by an almost complete recovery for the New York market in late trade. 

The London market ended the day on a positive note and with 66.7% of the earlier gains of the day intact, while the New York market ended the day on a softer note, but having recovered 90.8% of the earlier sharp losses of the day.   This close once again provides for little in the way of direction, but perhaps against the evidence of the large short sold position within the New York market and its ability to recover from the relatively high-volume downside pressure yesterday it might assist to inspire some degree of confidence, to set the markets for a steady start for early trade today, against the prices set yesterday, as follows: 

LONDON ROBUSTA US$/MT                       NEW YORK ARABICA USc/Lb. 

NOV   1878 + 5                                               DEC   127.05 – 0.55

JAN    1836 + 12                                            MAR   130.45 – 0.30

MAR   1813 + 11                                            MAY   132.70 – 0.35

MAY   1817 + 10                                            JUL    135.05 – 0.35 

JUL    1839 + 10                                            SEP    137.40 – 0.30

SEP    1842 + 10                                            DEC   140.85 – 0.25

NOV   1843 + 8                                              MAR   144.10 – 0.25

JAN    1848 + 8                                              MAY   146.05 – 0.25

MAR   1869 + 6                                              JUL    147.95 – 0.20

MAY   1879 + 10                                            SEP    149.85 – 0.15