Coffee Market Report November 11 2016

The Brazil Coffee Roasters Association ABIC have reported that they have assessed the domestic coffee market in Brazil to have increased by 3.4% in volume over the November 2015 to October 2016 period, having assessed consumption to have been 21.2 million bags.   This is a number a little bit higher than many had expected but the more important fact with a dedicated consumer market demand for approximately 31 million bags of Brazil coffee per annum, it equates to a minimum of 53 million bags of production per annum. 

This is not a frightening figure in terms of this year’s new Brazil coffee crop that is generally accepted to have been close to 55 million bags, but is a concern in terms of the fact that following the past two years of farm stock liquidation, that there was very little in the way of carryover stocks into the new Brazil crop this year.   Thus, dictating that if Brazil is to continue to fulfil its consumer market demand and maintain its market share on the longer term, that the country shall definitely need to bring in a 2017 coffee crop that is close to the levels of this year’s crop. 

So far with talk of a biennial bearing dip in production for this year’s relatively high yielding arabica coffee farms and with talk of continued dry weather problems for many of the conilon robusta coffee farmers, the prospects of 2017 coffee crop of close to 55 million bags is being seen to be ambitious.  Thus, while there is definitely no short to medium tightness of supply for both washed and natural arabica coffee supply, there is some degree of speculative concern over the prospects for longer term natural arabica coffee supply.  A factor that would relate to sentiment within the New York market, as it would likewise threaten overall arabica coffee supply. 

Tuesday the 15th. November is Proclamação da República Day or Independence Day in Brazil, but with many taking advantage to bridge the holiday with a day off on Monday, which is likely to inspire some degree of pre-holiday price fixation hedge selling on the part of exports today, while it will reduce the impact of Brazil within the New York market for the first two days of next week.   Noting that the Brazil Real has fallen in value to 3.39 to the dollar, which takes some of the bite out of the reversal in fortunes of the New York market, it terms of internal market prices to the farmers. 

The U.S. Government National Weather Service have reported that they can see evidence of a La Niña in the Pacific Ocean at present and that they estimate that there is a 55% chance that it shall carry on through to the end of the first quarter of next year, but by nature of the wording of this report, it would appear to be not too an intense La Niña.   If this is the case it is perhaps something of a positive phenomenon this time, as it would bring with it some small increase in rains for Brazil and Indonesia and likewise for South East Brazil, which would be beneficial for these countries coffee crops in the coming year.    A factor that would most likely dampen some of the bullish spirits that prevail, within the volatile New York market.    

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 71.12 usc/Lb., while this equates to a 42.93% 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 625 bags yesterday; to register these stocks at 1,271,115 bags.  There was meanwhile a larger in volume 1,500 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 18,318 bags. 

The commodity markets had a mixed but overall softer day yesterday and with the overall macro commodity index, taking a softer track for the day.  The U.S. Oil, Cotton, Copper, Orange Juice, Corn, Soybean and Silver markets nevertheless had a day of buoyancy, while the Brent Oil, Natural Gas, Sugar, Cocoa, Coffee, Wheat and Gold markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.21% lower; to see this Index registered at 419.44.   The day starts with the U.S. dollar marginally softer and trading at 1.256 to Sterling and 1.090 to the Euro, while North Sea Oil is steady and is selling at 43.60 per barrel. 

The London and New York markets started the day yesterday with early buoyancy and to take a modestly positive track into the early afternoon trade, when with volume building up both markets slipped back to par.  The more volatile New York and with the Brazil Real losing value to inspire sales, soon slipped deeper into negative territory, while the fundamentally steadier London market clung on to trade sideways close to par.   However, with sell stops accelerating the losses for the New York market as the afternoon progressed, the London market lost some more weight and likewise slipped deeper into negative territory.  Thus, setting the markets for a late in the day slide backwards, to see the New York market take is sharpest one day losses in thirteen months.   The London market ended the day on a soft note and with 90.3% of the earlier losses of the day intact, while the New York market ended the day on a very soft note and with 95.9% of the earlier losses of the day intact.    This soft close and with the corresponding negative technical picture it paints along with the potential for follow through Brazil and Vietnam price fixation selling, is likely to see the markets taking a follow through steady to soft stance for early trade today against the prices set yesterday, as follows: 

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

NOV     2133 – 57                                               DEC   161.85 – 8.25

JAN      2077 – 56                                              MAR   165.65 – 8.15

MAR     2084 – 55                                              MAY   167.95 – 8.15

MAY     2094 – 53                                                JUL   169.95 – 8.10

JUL      2102 – 54                                                SEP   171.80 – 8.05

SEP      2109 – 54                                               DEC   174.05 – 8.00

NOV     2118 – 54                                               MAR   175.95 – 7.95

JAN      2126 – 54                                               MAY   176.95 – 7.95

MAR     2141 – 54                                                JUL   177.80 – 7.95

MAY     2257 – 54                                                SEP   178.60 – 7.95