Coffee Market Report December 08 2017

The weather reports from Brazil indicate that good to what some describe as abundant rains have fallen over most of the main coffee districts this week, which indicate rising ground water retention levels and very supportive conditions for the development of the new 2018 coffee crop.   This news tending to support bearish sentiment within the volatile New York coffee market, where the speculative and fund sectors of the market are already heavily short sold into the market. 

Adding to this bearish news is the news of falling interest rates in Brazil, which comes because of the prevailing low inflation rate within the country.    To see the Brazil Real now trading at around 3.3 to the U.S. dollar, to take some of the bite in terms of domestic coffee prices, of the low reference prices of the international coffee markets.   This weaker exchange rate factor, seen to be conducive to increased Brazil exporter price fixation selling pressure for the New York market.   

President Juan Manuel Santos of Colombia has announced that along with the support of the National Federation of Coffee Growers, that the country has plans to continue its program and to renovate with new higher yielding and disease resistant coffee trees.   This program they say is targeting the renovation of existing coffee farms and the replacement of coca trees in the many liberated districts of the country of approximately 100,000 hectares per annum, through to 2024.   The program designed to steadily increase Colombian coffee production towards a target of more than 18 million bags per annum.

The Coffee Board of India have reported that the countries coffee exports for the first eleven months of this year were 8% higher than the same period last year, at a total of approximately 6 million bags.  These exports made up from exports of 734,733 bags of arabica coffees and 3,524,033 bags of robusta coffees, with the balance of the exports being related to value added processed and mostly in soluble instant coffee form. 

It is however difficult to assess the significance of this rise in overall exports, as the latter processed coffee exports include relatively high volumes of imported coffees from other producers, for value add and re-export.   But it has to be noted that with the new Indian coffee crop now starting and with the Coffee Board forecasting a larger new crop, that one might expect Indian coffee exports to further increase in the coming year. 

The March 2018 to March 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 44.75 usc/Lb., while this equates to 36.41% price discount for the London Robusta coffee market.   

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 5,225 bags yesterday; to register these stocks at 1,937,643 bags.  There was meanwhile a larger in number 6,205 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 26,591 bags. 

The commodity markets were mixed in trade yesterday but with many market remaining south of par, to see the overall macro commodity index taking a softer track for the day.   The Oil, Cotton and Copper markets nevertheless had a day of buoyancy, while the Natural Gas, Sugar, Cocoa, Coffee, Orange Juice, Wheat, Corn, Soybean, 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 0.78% lower; to register this index at 407.42.   The day starts with the U.S. Dollar steady and trading at 1.350 to Sterling and at 1.176 to the Euro, while North Sea Oil is steady and is selling at US$ 62.65 per barrel. 

The London and New York markets started the day yesterday trading close to par and with both markets maintaining value within an environment of thin trade at close to par, into the early afternoon trade.   As the afternoon progressed the New York market and in line with the negative influences of the soft overall macro commodity index started to drift lower and followed by a softening within the London market, but with the New York market triggering sell stops to accentuate the losses and the volume of trade, to take a more aggressive move south and towards five and half month lows for the market. 

The London market ended the day on a negative note and having recovered 80.8% of the earlier losses of the day intact, while the New York market ended the day on a likewise negative note and with 80% of the earlier losses of the day intact.   This close assists to paint a negative picture for the charts and does little to inspire any confidence and one might suspect that the markets are due for another hesitant and thinly traded start at close to par for early trade today, against the prices set yesterday, as follows: 

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

JAN    1730 – 28                                            DEC   120.85 – 4.00

MAR   1723 – 21                                            MAR   122.90 – 3.20

MAY   1732 – 20                                            MAY   125.15 – 3.10

JUL    1771 – 13                                            JUL     127.45 – 3.10 

SEP    1780 – 13                                            SEP    129.85 – 2.95

NOV   1789 – 13                                            DEC    133.25 – 2.95

JAN    1797 – 13                                            MAR   136.50 – 2.95

MAR   1807 – 13                                            MAY   138.55 – 2.90

MAY   1832 – 13                                            JUL    140.60 – 2.80

JUL    1864 – 13                                            SEP    142.55 – 2.75