Coffee Market Report January 25 2018

The negative effects for coffee producers that comes with the soft nature of the reference prices within the coffee terminal markets, is quite apparent from the latest report from the Ethiopian Coffee, Tea and Spices Marketing and Development Authority.   In this respect and with the country working on a July to June Fiscal Year, the report has indicated that the countries coffee exports for the six months over July to December were 88,367 bags or 5.2% higher than had been budgeted for the period, at a total of 1,788,367 bags.    However, in terms of export revenue, that the earnings from these sales were 54 million US dollars or 12.39% lower than budgeted for the period, at a total of 382 million U.S. dollars. 

This relatively sharp dip in income expectations in Ethiopia might of course be related to a degree upon overly ambitious budgeting, but it does nevertheless highlight the problems being encountered by coffee farmers at present, as for many the available prices are falling south of their cost of production.   This factor being accentuated at present by the weakening value of the U.S. dollar, which is further reducing farm gate prices for most coffee producers, in terms of domestic currency value and bringing with it various degrees of internal market price resistance within the individual producer countries. 

This comes with the corresponding firming of asking export price differentials relative to the terminal markets, from many of the producer countries and particularly such producers, who have something of a dedicated consumer market support for their seen to be unique by some markets and industries, qualities of coffee.   But for such producers who do not have something in terms of quality that is seen to be unique in some manner, the prevailing availability of more than adequate overall global coffee supply does not lend itself to relatively aggressive differential inflation.  

With China now close to producing 2 million bags of coffee per annum and with a growing domestic coffee market, there is increasing interest in this market and apparently good support for next week’s first International Speciality Coffee Conference and Exhibition, which is being held in Pu’er City, in Yunnan Province.  With indications that this Exhibition has 500 exhibition booths available, while the three-day conference has attracted a host of international delegates to share their knowledge and views on the various aspects of coffee production, coffee marketing and coffee retailing. 

The March 2018 to March 2018 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 41.99 usc/Lb., while this equates to 34.28% price discount for the London Robusta coffee market.   

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 15,291 bags yesterday; to register these stocks at 1,988,608 bags.  There was meanwhile a smaller in number 8,549 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 51,606 bags.  

The commodity markets and with a weaker U.S. dollar in play yesterday, were mostly showing buoyancy for the day and with the overall macro commodity index taking a positive track for the day.   The Oil, Natural Gas, Cocoa, Coffee, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy and the Cotton market was steady for the day, while the Sugar and Orange Juice markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.23% higher; to register this index at 432.37.   The day starts with the U.S. Dollar tending softer and trading at 1.430 to Sterling, at 1.245 to the Euro and 3.146 to the Brazilian Real, while North Sea Oil is steady and is showing a degree of early buoyancy and is selling at US$ 71.15 per barrel. 

The London market started the day yesterday on a steady note and trading around par, while the New York market started the day with some modest buoyancy and with the London market soon mirroring this buoyancy, to see both markets showing some degree of buoyancy for the early afternoon trade.   As the afternoon progressed and with the weakening U.S. dollar tending to slow producer selling activity, while the New York market also gleaned some degree of support from the firming nature of the overall macro commodity index, both markets started to add value and to take a firmer sideways track for the rest of the day. 

The London market ended the day on a very positive note and with 92.9% of the earlier gains of the day intact, while the New York market ended the day on a positive note and with 72.1% of the earlier gains of the day intact.   This close and with the weaker nature of the dollar, might assist to build some degree of confidence and to assist towards a steady start for early trade today, against the prices set yesterday, as follows: 

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

JAN    1789 + 20    

MAR   1775 + 26                                            MAR   122.50 + 1.55

MAY   1755 + 21                                            MAY   124.90 + 1.50

JUL    1782 + 21                                             JUL   127.30 + 1.55 

SEP    1786 + 21                                            SEP    129.70 + 1.55

NOV   1793 + 20                                            DEC    133.20 + 1.60

JAN    1800 + 20                                            MAR   136.55 + 1.70

MAR   1814 + 20                                            MAY   138.50 + 1.70

MAY   1828 + 20                                             JUL   140.30 + 1.75

JUL    1858 + 20                                             SEP   142.00 + 1.70