Coffee Market Report November 08 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market increase their net long position within the market by 11.79% over the week of trade leading up to Tuesday 1st. November; to register a net long position of 56,621 Lots.   Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 5.41%, to register a net long position of 40,887 Lots on the day. 

Over the same week the Non-Commercial Speculative sector of this market increased their long position within the market by 9.45%, to register net long position of 55,917 Lots.   This net long position which is the equivalent of 15,852,222 bags is most likely to have been further increased, following the period of more positive trade that has since followed and likewise, that of the Managed Money fund sector of the market. 

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Non-Commercial sector of this market increase their net long position within this market by 3.89% during the week of trade leading up to Tuesday 1st. November; to register a long position of 37,470 Lots.  This net long position which is the equivalent of 6,245,000 bags has most likely been further increased, following the period of overall more positive trade that has since followed. 

The surge in fund and speculative buying into the New York market remains something of a fundamental mystery at present, as the bullish perspective within the arabica coffee market is not related to any tightness in supply of arabica coffees, as it is rather the robusta coffee supply that is a factor that is one of concern and the London market based on fundamentals that should be surging in value.   However, for the present the London market while showing follow through buoyancy, has been unable to keep up with the rising value within the New York market, which is very over bought for the present. 

This strong speculative support for the arabica coffee market is further confusing as so far the rainfall reports for the main arabica coffee districts in Brazil are all favourable and while it is early days still in terms of the countries spring and summer rain season, are pointing towards the potential for a good Brazil arabica crop for next year.   While it remains the problem of less than perfect rainfall so far, for the eastern conilon robusta coffee districts of the country, which is so far indicating another modest Brazil conilon robusta coffee crop for the coming year.   

This said and with the Non-Commercial speculative net long within the New York market as at Tuesday last week close to the record high of November 2008 and with trade since Tuesday last week having no doubt added more weight to this position and possibly a new record high, one might guess that the market might be somewhat vulnerable to a nearby correction.   Albeit that there are always new records to be made, which provides no certainty for such a correction.  

The Coffee Board in India have forecasted that the countries coffee production for this new October 2016 to September 2017 coffee year shall be 466,667 bags or 8.05% lower than the previous coffee year, at 5,333,333 bags.   This forecast is marginally lower than some of the of the private trade and industry forecasts which had been talking in terms of a new crop of around 5.4 million bags, but there would appear to be no question to the prediction that the new crop shall be lower than the previous 5.8 million bag crop. 

The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 78.07 usc/Lb., while this equates to a 43.87% 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 375 bags yesterday; to register these stocks at 1,271,935 bags.  There was meanwhile a larger in volume 660 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 13,139 bags. 

The commodity markets were mixed in trade yesterday, but despite the renewed muscle of the U.S. dollar the overall macro commodity index had a day of modest buoyancy.  The Oil, Natural Gas, Sugar, Coffee, Copper, Orange Juice and Soybean markets had a day of buoyancy, while the Cocoa, Cotton, Wheat, Corn, 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 0.27% higher; to see this Index registered at 420.98.   The day starts with the U.S. dollar steady and trading at 1.239 to Sterling and 1.104 to the Euro, while North Sea Oil is near to steady and is selling at 43.40 per barrel. 

The London and New York markets started the day with a corrective dip in value, but this was short lived and both markets soon recovered, to see the markets taking a positive track into the early afternoon trade.    There was soon a brief dip back into negative territory but with the swift recovery for the volatile New York market, both markets once again moved back into positive territory, but with the London market taking a more modest positive track, while the New York market added substantial value.   The London market shrugged off another downside dip to take a modestly sideways positive track to the close, while the New Yorke market came back of the highs in late trade to nevertheless end the day with good added value.   The London market ended the day on a positive note and with 54.5% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 71.8% of the earlier gains of the day intact.   This close once again paints a positive technical picture for the markets but one might suggest that the questionable extensive net long position within the New York market might well inspire some degree of profit taking and price fixation selling pressure for the markets for early trade today against the prices set yesterday, as follows: 

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

NOV     2251 + 6                                                 DEC   174.35 + 3.00

JAN      2194 + 6                                                MAR   177.95 + 3.05

MAR     2202 + 7                                                MAY   180.15 + 3.15

MAY     2211 + 6                                                  JUL   182.00 + 3.15

JUL      2215 + 4                                                  SEP   183.65 + 3.10

SEP      2222 + 4                                                 DEC   185.75 + 3.00

NOV     2227 + 4                                                 MAR   187.45 + 2.95

JAN      2235 + 4                                                 MAY   188.40 + 2.85

MAR     2248 + 4                                                  JUL   189.30 + 2.80

MAY     2264 + 4                                                  SEP   190.15 + 2.65