Coffee Market Report January 26 2018

Weather reports from South East Brazil for this week have been somewhat disappointing for many coffee farmers within the arabica coffee districts, as largely it would seem, the rains that did come to the fore were below what had been forecast for the week.  While the forecast for the coming week, does not indicate much in the way of rains for the majority of the arabica coffee districts.    

Such a dry spell for a couple of weeks is however not unusual and for the present, is no reason to raise concern over the prospects for the new Brazil crop this year, which has been generally forecast to be much larger than last year and is the major factor that is fuelling the prevailing bearish sentiment within the coffee markets.   It is however a factor that must be watched as if there are no reasonable rains forthcoming for the main arabica coffee districts over the first couple of weeks of February and this is so far not foreseen, there would not only be fireworks in Asia to bring in the Chinese and Vietnamese New Year, but also within the coffee terminal markets.  

In the meantime, and with only fourteen trading days before the Tet New Year’s Eve on the 15th. February and with farmers looking to raise cash to fund the week-long celebrations to bring in the new Year of the Dog, there are expectations of continued new crop selling aggression within the internal market in Vietnam.   Albeit that robusta coffee having grown used to the firmer prices that prevailed over the past year in line with the reference prices of the London market, are due to be disappointed by the prevailing prices on offer. 

One might suggest though in terms of farm income, that with the previous 2015/2016 crop having been approximately 13% smaller in volume than the new crop that has just been completed, that the dip in unit prices shall be partially countered by the improved volume of coffee available for sale.   While in terms of the international market and with robusta coffee supply from Indonesia drying up and with little chance to pick up in volume until the new crop starts to impact in April, the increased availability of new crop robusta coffees from Vietnam is not seen to be a surplus but rather a much-needed supply for the consumer markets. 

Africa’s second largest robusta coffee producer the Ivory Coast has reported that the provisional port statistics indicate that the countries coffee exports for 2017 were 580,117 bags or 46.65% lower than the export for the previous year, at a total of only 663,367 bags.   This is a somewhat unexpected dip in coffee export volumes which had been expected to be more than 1 million bags for the year, but one has to keep in mind that traditionally large volumes of Ivory Coast coffees are smuggled into neighbouring countries and export statistics from the country are not really a precise and accurate measure of Ivory Coast coffee supply.   While this did in exports in terms of overall global coffee supply, is not really a matter to much concern for market players. 

The March 2018 to March 2018 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 43.68 usc/Lb., while this equates to 35.33% 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 7,002 bags yesterday; to register these stocks at 1,981,606 bags.  There was meanwhile a smaller in number 4,560 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 47,046 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, Sugar, Cocoa, New York arabica Coffee, Orange Juice, Wheat, Soybean, Gold and Silver markets had a day of buoyancy, while the Natural Gas, London robusta Coffee, Cotton, Copper and Corn markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.11% higher; to register this index at 432.83.   The day starts with the U.S. Dollar showing some degree of early buoyancy and trading at 1.420 to Sterling, at 1.245 to the Euro and 3.147 to the Brazilian Real, while North Sea Oil is near to steady and is selling at US$ 70.60 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 taking a positive track into the early afternoon trade.   As the afternoon progressed the New York market attracted increased support and triggering buy stops to surge into strong positive territory, while the London market retained its buoyancy.   This was however short lived and the New York market that peaked with gains of 3 usc/Lb. started to attract producer selling pressure and speculative profit taking that took the market back into negative territory and along with the London market, but while the London market remained south of par the New York market did manage to bounce back into positive territory during the late trade for the day. 

The London market ended the day on a negative note and with 57.1% of the earlier losses of the day intact, while the New York market ended the day on a positive note and with 38.3% of the earlier gains of the day intact.   This mixed close and with the way that the New York market faltered at the highs yesterday does little to inspire, but one might think that there shall nevertheless be a degree of caution and that the markets are due for a hesitant steady start for early trade today against the prices set yesterday, as follows: 

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

JAN    1777 – 12     

MAR   1763 – 12                                            MAR   123.65 + 1.15

MAY   1745 – 10                                            MAY   126.05 + 1.15

JUL    1775 – 7                                               JUL   128.45 + 1.15 

SEP    1779 – 7                                              SEP    130.85 + 1.15

NOV   1786 – 7                                              DEC    134.40 + 1.20

JAN    1792 – 8                                              MAR   137.75 + 1.20

MAR   1805 – 9                                              MAY   139.70 + 1.20

MAY   1819 – 9                                               JUL   141.45 + 1.15

JUL    1849 – 9                                               SEP   143.10 + 1.10