Coffee Market Report November 14 2016

The weather conditions in Brazil continue to favour a follow-on fair to good arabica coffee crop for the coming year, which is perhaps starting to dampen some of the bullish spirits within the New York market, but there are still questions with the more erratic rains that have been experienced so far this spring and summer, over the conilon robusta coffee districts within the state of Espirito Santo.    These weather reports have been accompanied by the forecasts from the trade house Ecom, who have forecast a rather confident 56 million bags new crop for Brazil for the coming year, which would include 43 million bags of arabica coffee and an improved 13 million bags conilon robusta crop.   

It is however early days in terms of the development of the new Brazil crop and it is doubtful that the generally positive view being taken towards next year’s arabica coffee crop shall become a confident overall belief in a good sized new crop, until there is certainty of continued good rains being experienced early in the new year.   While one might expect that, there shall be longer term uncertainty in terms of next year’s conilon robusta coffee crop, until there is clear evidence of its potential. 

Meanwhile with tomorrows Proclamação da República Day or Independence Day in Brazil and with many taking a bridge day holiday today to extend the long weekend, there can be expected to be only muted selling activity out of Brazil today and most certainly tomorrow, despite the support for internal market prices that comes from a Brazil Real that is presently trading at 3.39 to the U.S. dollar.   This might assist to somewhat settle the New York market for the first half of this week, following the liquidation experienced last week.  

The 26th. International Conference on Coffee Sciences opened yesterday in Kunming in the Yunnan province in China and shall continue through to Saturday, with the location being within the country’s main coffee province, which accounts for 99% of the country’s coffee production of mostly arabica coffees.   This location for the conference and with the new crop harvest in progress, assisting to highlight China’s growing prominence within the coffee, with production now being indicated at being in excess of 2.3 million bags per annum.   The larger part of this washed arabica coffee production presently being exported to the main stream consumer markets, while growing domestic consumption takes advantage of imports of in excess of 1 million bags of price competitive robusta coffees and mainly from neighbouring Vietnam.  

The March to March contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 70.79 usc/Lb., while this equates to a 43.4% price discount for the London robusta coffee market.  This arbitrage remains 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 increase by 1,252 bags on Friday; to register these stocks at 1,272,367 bags.  There was meanwhile a larger in volume 5,805 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 12,513 bags. 

The commodity markets and with the U.S. dollar showing some renewed muscle for the day, had down day on Friday, with the overall macro commodity index taking a softer track for the day.   The Sugar and Cocoa markets nevertheless had a day of buoyancy, while the Oil, Natural Gas, Coffee, Cotton, Copper, Orange Juice, Wheat, Corn, Soybean, Gold and Silver markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.53% lower; to see this Index registered at 413.03.   The day starts with the U.S. dollar showing early buoyancy and trading at 1.256 to Sterling and 1.079 to the Euro, while North Sea Oil is near to steady and is selling at 41.95 per barrel. 

The London market started the day on Friday on a softer note and with negative pressure building with the impact of the gathering pace of the new crop harvest within Vietnam, while the New York market showed some degree of corrective early buoyancy.  This erratic buoyancy was however short lived and with the negative nature of the overall macro commodity index in play the New York market started to falter in early afternoon trade, while the London market following a brief spike back to close to par, came under some added pressure and started to take a downside track.   The London market continued on its negative downside track through to the close, while the New York market soon hit a support level to take an erratic negative sideways track through to the close.  The London market ended the day on a very soft note and with 84.7% of the earlier losses of the day intact, while the New York market ended the day on a soft note and with 65.4% of the earlier losses of the day intact.   This close does little to inspire confidence and contributes to paint a negative technical picture for the markets, but one might think that following last week’s negative correction and despite the positive nature of the U.S. dollar, that the potential of for muted activity out of Brazil and the prospects for internal market price resistance in Vietnam, might assist for a hesitantly steady start for early trade today, against the prices set on Friday, as follows: 

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

NOV     2083 – 50                                               DEC   159.45 – 2.40

JAN      2027 – 50                                              MAR   163.10 – 2.55

MAR     2035 – 49                                              MAY   165.40 – 2.55

MAY     2045 – 49                                                JUL   167.40 – 2.55

JUL      2054 – 48                                                SEP   169.20 – 2.60

SEP      2061 – 48                                               DEC   171.45 – 2.60

NOV     2070 – 48                                               MAR   173.35 – 2.60

JAN      2078 – 48                                               MAY   174.40 – 2.55

MAR     2092 – 49                                                JUL   175.25 – 2.55

MAY     2108 – 49                                                SEP   176.05 – 2.55