Coffee Market Report November 07 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the Non-Commercial Speculative sector of this market increase their net long position within the market by 9.45% during the week of trade leading up to Tuesday 1st. November; to register a net long position of 55,917 Lots on the day.  This net long position which is the equivalent of 15,852,222 bags has most likely been significantly increased, following the period of overall more positive trade, which has since followed. 

This is really an extensive net long position that is now being held within the volatile New York market and is seemingly due to the support for speculative sentiment that comes with the continued weather concerns for Brazil and its influence upon the next 2017 crop, along with the uncertainty over the prospects for the delayed new robusta coffee crop out of Vietnam.    But the overbought signals are quite strong for this market and one might soon expect to see some corrective profit taking coming into play and to take advantage of catch up consumer industry price fixation buying activity, which might in turn also trigger some increase in producer price fixation volumes.   Pointing to the potential for a week of volatility being due, for the New York market. 

The Coffee Federation in Colombia have reported that the country’s coffee production for the month of October was 27,000 bags or 1.97% higher than the same month in the previous year, at a total of 1,395,000 bags.  This improved performance follows the improved performance of the previous October 2015 to September 2016 coffee year, which saw production for the coffee year improve by 5.07% over the previous coffee year, to total 14,009,000 bags.  With many now forecasting that this new October 2016 to September 2017 coffee year see production further improve, to something in the order of 14.5 million bags. 

In terms of exports, the Coffee Federation in Colombia have reported that the country’s coffee exports for the month of October were 67,000 bags or 5.67% higher than the same month in the previous year, at a total of 1,249,000 bags.  This improved performance follows on from the 0.04% increase in the coffee exports for the previous October 2015 to September 2016 coffee year, when exports were recorded 12,291,000 bags.  With the potential, should the predictions for an increase in production for the present October 2016 to September 2017 coffee year prove to be correct, for exports to increase to close to 13 million bags. 

These positive forecasts from Colombia and added to the forecasts for increased fine washed arabica coffee production from the new Mexican and Central American producer bloc and likewise for the follow on new Peru crop, presently indicate that there shall be no medium to longer term tightness in fine washed arabica coffee supply. 

The Ivory Coast the second largest robusta coffee supplier from Africa have reported that the countries coffee exports for the first nine months of this year were 31% higher than the same period last year, at a total of 1,026,650 bags.  This improved performance has no doubt been inspired more by the improved reference prices of the London market in the recent months, than to any improvement on supply.   While with forecasts for coffee exports for this year being for a number close to 1.5 million bags, one would expect to see fair volumes of Ivory Coast robusta coffees coming to the consumer markets for the last quarter of this year.  Most of these coffees destined for their traditional markets, in North Africa and the Mediterranean rim countries in Europe.   

The recent rise in the reference prices of the terminal markets and particularly so for the New York arabica coffee market provide very public justification for the main stream leading coffee industries in North America and Europe to justify wholesale coffee prices, which shall be coming to the markets.  This shall assist for roasters to pay up for coffees and by nature, to allow for less resistance to the rising terminal market prices, which have been mostly fund driven for the leading New York market.  But we do take this opportunity to state that the price increases are follow on in nature by individual roasting companies and not industry association related and likewise take the opportunity to correct a misunderstanding developed by the wording of our report on Friday, to clarify that the Deutscher Kaffeeverband or German Coffee Association, does not make any decisions on wholesale coffee pricing within their important consumer market. 

The March to March contracts arbitrage between the London and New York markets broadened on Friday, to register this at 75.34 usc/Lb., while this equates to a 43.08% price discount for the London robusta coffee market.  This arbitrage is once again becoming an attractive factor for the roasters who have considered robusta coffees to be an opportunist discount component, within their mostly arabica coffee blends. 

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 678 bags on Friday; to register these stocks at 1,272,310 bags.  There was meanwhile a similar in volume 605 bags dip to the number of bags pending grading for this exchange; to register these pending grading stocks at 13,139 bags. 

The commodity markets encountered a continued softness for the U.S. dollar on Friday, but this did assist the overall macro commodity index, which took a softer track for the day.   However, following improved jobs data from the U.S.A. late in the day and with the speculation for a dollar interest rate hike due in December, the dollar has started the week with a degree of buoyancy and is likely to further dampen spirits within the commodity markets today.   The Natural Gas, Sugar, Coffee, Cotton, Copper, Orange Juice and Wheat markets had a day of buoyancy and the Corn and Soybean markets had steady day, while the Oil, Cocoa, Gold and Silver markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.07% lower; to see this Index registered at 419.86.   The day starts with the U.S. dollar showing a degree of buoyancy and trading at 1.244 to Sterling and 1.107 to the Euro, while North Sea Oil is showing a degree of buoyancy and is selling at 43.75 per barrel. 

The London market started the day on Friday tending softer, while the New York market started the day on a steady note and with the markets taking this track into early afternoon trade and with the New York market briefly joining the London market in negative territory.  The New York market did however soon recover and attracting buy stops, to add significant value and with the London market following suit and joining the New York market in positive territory.    This set the pace for the rest of the day and with the New York market adding more value, while the London market took a less aggressive upside track though to the close.   The London market ended the day on a positive note and with 81.5% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 90.5% of the earlier gains of the day intact.  This close paints a positive technical picture for the New York market and might inspire some degree of confidence, but with the evidence of the extensive longs within the New York market that would by now be much extended, there might well be some corrective profit taking and producer price fixation selling due to come into play for early trade today against the prices set on Friday, as follows: 

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

NOV     2245 + 22                                               DEC   171.35 + 5.70

JAN      2188 + 22                                              MAR   174.90 + 5.70

MAR     2195 + 23                                              MAY   177.00 + 5.60

MAY     2205 + 25                                                JUL   178.85 + 5.55

JUL      2211 + 26                                                SEP   180.55 + 5.55

SEP      2218 + 26                                               DEC   182.75 + 5.55

NOV     2223 + 25                                               MAR   184.50 + 5.50

JAN      2231 + 25                                               MAY   185.55 + 5.50

MAR     2244 + 25                                                JUL   186.50 + 5.50

MAY     2260 + 25                                                SEP   187.50 + 5.60