Coffee Market Report November 09 2016
The week has been a mostly dry one so far over the main central highlands coffee districts in Vietnam, to see harvest activity picking up and with forecasts for sunny days to come, the perspective that the delayed new Vietnam crop is due to start coming to the fore in good volume by the end of the month. This is a relief for the countries exporters who have been mostly reliant upon their substantial carryover stocks from the past crop, to fulfil their forward contract export commitments.
This news has tended to dampen bullish spirits within the market, but is perhaps a false confidence in medium term robusta coffee supply, as the reality is that there shall be little in the way of conilon robusta coffee due to come to the consumer markets until at least June next year and with the new Brazil conilon crop. While with the conilon robusta farmers in the Brazilian state of Espirito Santo not having received the good rains that have impacted over the past month over the main arabica coffee districts in the country, the forecasts are for another poor conilon robusta crop due for the coming year and likewise, continued tight supply of these coffees.
Furthermore, and until the impact of the next Indonesian robusta coffee crop in May next year, there shall likewise be tight robusta coffee supply out of this important contributor to the consumer market robusta coffee supply. In the meantime, there are forecasts for a smaller new Indian robusta coffee crop, which shall potentially decrease the countries contribution to robusta coffee supply to the consumer markets.
This all suggests that if the forecast for the new Vietnam robusta coffee crop to be lower than last and lacking stiff competition from other producers, that the increased demand for Vietnam coffees shall inspire internal market price resistance for the first half of next year, which would be supportive for the reference prices of the London market. Thus, one might suggest that while the exuberance over the start of the new Vietnam crop has allowed the London market to follow the speculative slide in the fortunes of the volatile New York market, it is somewhat likely that on the longer term, the London market shall start to once again show the buoyancy that is related to the fundamental of tighter robusta coffee supply.
The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 76.13 usc/Lb., while this equates to a 44.47% 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.
In the meantime, there was something of a tipping point for the New York arabica coffee market yesterday, with the market that nearly hit a two-year high early in the day, coming under selling pressure. This triggered a somewhat foreseeable bout of fund selling and with sell stops being triggered, relatively sharp losses for the day. But following the past week of significant gains in value for this market, one cannot really say that it was a liquidation but rather, a correction for the day and this market still projects relatively good value.
The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 1,805 bags yesterday; to register these stocks at 1,273,740 bags. There was meanwhile a larger in volume 3,784 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 9,355 bags.
The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 667 bags or 0.03% over the week of trade leading up to Monday 7th. November, to see these stocks registered at 2,279,500 bags, on the day.
The commodity markets were mixed in trade yesterday, but with the overall macro commodity index maintaining a steady track for the day. The Oil, Cocoa, Cotton, Copper, Wheat, Corn, Soybean and Silver markets had a day of buoyancy, while the Natural Gas, Sugar, Coffee, Orange Juice and Gold markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.08% lower; to see this Index registered at 420.65. The day starts with the U.S. dollar coming under pressure from the prospects of a surprise election result and trading at 1.250 to Sterling and 1.127 to the Euro, while North Sea Oil is tending softer and is selling at 42.30 per barrel.
The London market started the day yesterday on a softer note, while the New York market experienced follow through buoyancy in early trade and with the markets maintaining this track into the early afternoon trade, but with the New York market soon coming under pressure and falling back to join London in modest negative territory. As the afternoon progressed the New York market started to come under further pressure and this started to trigger sell stops to accelerate the losses and with the London market following the negative trend that was being set in New York, with both markets suffering from further losses and with the markets ending the day on a very soft note. The London market ended the day on a very soft note and with 87.9% of the earlier losses of the day intact, while the New York market ended the day on a likewise very soft note and with 96.4% of the earlier losses of the day intact. This sharp negative correction provides for a negative technical picture, but with the softer U.S. dollar in play it might soften the chances for follow through selling and one might expect to see a hesitant near to steady start for early trade today, against the price set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK ARABICA USc/Lb.
NOV 2142 – 109 DEC 167.50 – 6.85
JAN 2085 – 109 MAR 171.20 – 6.75
MAR 2096 – 106 MAY 173.45 – 6.70
MAY 2107 – 104 JUL 175.40 – 6.60
JUL 2114 – 101 SEP 177.20 – 6.45
SEP 2121 – 101 DEC 179.50 – 6.25
NOV 2126 – 101 MAR 181.40 – 6.05
JAN 2134 – 101 MAY 182.40 – 6.00
MAR 2149 – 99 JUL 183.30 – 6.00
MAY 2165 – 99 SEP 184.10 – 6.05