Coffee Market Report January 19 2018

The official crop supply agency in Brazil Conab have come to the fore yesterday, in support of the many other forecasts for a significantly larger new Brazil coffee crop for this year.   In this respect they have forecast the new crop could be between 54.44 million and 58.51 million bags and based upon a new arabica coffee crop of between 41.74 million bags and 44.55 million bags, which is significantly larger than their estimate of the 2017 arabica coffee crop of 34.2 million bags.  While the report has forecast that the countries new conilon robusta coffee crop which they had pegged at 10.72 million bags for the previous 2017 crop, shall rise this year to between 12.69 to 13.95 million bags. 

This report and coming from a traditionally conservative source, had a marked negative effect upon sentiment within the New York market, but did not impact upon the buoyancy that prevailed within the London market in yesterday’s trade.  But this is not really an unusual scenario, as in the terms of the price discounted conilon robusta coffees which are mostly consumed within the internal market in Brazil, the increase in production would indicate the potential release of even higher volumes of the new arabica coffee crop for export to the consumer markets.  

Meanwhile the weather reports from Brazil have indicated very good rains so far, this month for the southern coffee districts of the country, with more modest rainfall for the more northern coffee districts.   But nevertheless, the more northern districts have had some rains and with forecasts for more rains to come over the next couple of weeks, there are no weather-related concerns over the prospects for the larger new Brazil coffee crop this year.   

There is though and following last year’s smaller Brazil arabica coffee crop and with the Brazil Real relatively firm against the U.S. dollar and while the New York market is presently trading at close to the bottom end of the prevailing soft price trading range, a degree of internal market price resistance.   This factor and with the resulting relatively firm asking export differentials for new arabica coffee sales, due to supress the export volumes of Brazil arabica coffees for the next few months.  But with the consumer market industries not really showing any concern, as with increased volumes of new crop arabica coffees now available from Mexico, Central America, there really is no tightness in overall arabica coffee supply. 

The March 2018 to March 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 39.77 usc/Lb., while this equates to 32.84% 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 5,321 bags yesterday; to register these stocks at 2,012,166 bags.  There was meanwhile a larger in number 6,246 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 40,749 bags.  

The commodity markets and despite a softer dollar in play yesterday were mixed in trade, to see the overall macro commodity index taking a sideways track for the day.  The London robusta Coffee, Cotton, Copper, Orange Juice, Wheat and Soybean markets had a day of buoyancy and the U.S. Oil market was steady, while the Brent Oil, Natural Gas, Sugar, Cocoa, New York arabica Coffee, Corn, Gold and Silver markets had softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.04% lower; to register this index at 426.32.   The day starts with the U.S. Dollar tending softer and trading at 1.390 to Sterling, at 1.226 to the Euro and 3.206 to the Brazilian Real, while North Sea Oil is tending softer and is selling at US$ 68.65 per barrel. 

The London and New York markets started the day yesterday with a degree of buoyancy, but with the London market soon coming under some pressure and heading back into modest negative territory, while the New York market slipped back towards par, for the early afternoon trade.   As the afternoon progressed the London market bounced back into positive territory and took a steady upside track for the rest of the day, but with the New York market and faltered and started on a downside track for the rest of the day’s trade, which eliminated much of the previous day’s gains. 

The London market ended the day on a very positive note and with 96% of the earlier gains of the day intact, while the New York market ended the day on a very negative note and with 93% of the earlier losses of the day intact.  This mixed close and with the technical picture for the London market looking positive as against the technical picture for the New York market looking negative is likely to inspire some degree of caution and hesitancy for early trade today, against the prices set yesterday, as follows: 

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

JAN    1807 + 18  

MAR   1793 + 24                                            MAR   121.10 – 2.00

MAY   1762 + 8                                              MAY   123.55 – 2.00

JUL    1791 + 8                                               JUL   125.90 – 2.05 

SEP    1795 + 8                                              SEP    128.25 – 2.05

NOV   1802 + 10                                            DEC    131.65 – 2.05

JAN    1809 + 10                                            MAR   134.95 – 2.00

MAR   1823 + 8                                              MAY   136.95 – 1.90

MAY   1841 + 8                                               JUL   138.75 – 1.80

JUL    1871 + 8                                               SEP   140.55 – 1.65