Coffee Market Report March 22 2018

The coffee markets remain devoid of striking fundamental news for the present and with focus remaining upon the prospects for a surplus coffee supply for the forthcoming October 2018 to September 2019 coffee year, which comes with the forecast for a significantly larger new Brazil crop. 

There must be some concern though over the fact that the prevailing soft nature of the terminal market coffee prices are making it difficult for many coffee farmers to produce coffee at a profit and to finance the inputs to maintain farm yields, which is threatening for overall global production volumes in the coming year.   Whilst in the meantime and lead by the Asian markets, the global coffee consumption is steadily increasing and shall most likely in the coming year, see production slipping below consumption. 

A good example of Asian consumption increase is South Korea and with a population of 51.1 million, where the value of the country’s coffee market has increased threefold over the last ten years.    With a report coming to the fore that has estimated based on customs coffee import data that the South Koreans now consume approximately 512 cups of coffee per capita, per annum.    Quite an astounding figure in terms of a country with a median age of 41.3 years and indicating many older people who would not have grown up within a coffee drinking culture, that the country and including the youth, is drinking approximately 1.4 cups of coffee per capita per day. 

This growth in consumption is being led by the coffee shop culture within Korea that has close to 82% of the population living within an urban environment, but it is a not a culture unique to Korea and with most Asian countries becoming more and more urbanised and likewise, with a rapidly increasing number of coffee shops opening.   Making on speculate that growth in coffee consumption shall continue to surge over the next decade within Asia and with it an increasing demand for coffee, which shall inspire ever increasing coffee production within the region that presently only accounts for approximately 19% of global coffee consumption and between 32% and 33% of global coffee production. 

The latter market share of global coffee production that is related to Asian producers, is variable in line with the fortunes of the annual Brazil, Vietnam and Indonesian coffee crops, which often based on biennially bearing factors and weather-related factors, can differ quite dramatically from year to year.    But one can expect that in time not only is there the potential for Indonesia and with a growing coffee consumption shall double its already substantial coffee production, but the strong potential for relatively low-income countries such as Myanmar, Cambodia, Laos and the Philippines, to be inspired to become more active coffee producers. 

The May 2018 to May 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 39.38 usc/Lb., while this equates to 33.13% 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 775 bags yesterday; to register these stocks at 1,933,162 bags.  There were meanwhile larger in number 9,633 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 34,045 bags. 

The commodity markets were mixed in trade yesterday but with most markets showing a degree buoyancy, to see the overall macro commodity index on a positive track for the day.   The Oil, Sugar, Cocoa, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy and the Coffee markets were marginally softer for the day, while the Natural Gas, Cotton 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 0.46% higher; to see this index registered at 424.92.  The day starts with the U.S. Dollar tending softer and trading at 1.415 to Sterling, at 1.235 to the Euro and with the dollar buying 3.274 Brazilian Real, while North Sea Oil is tending softer and is selling at US$ 68.45 per barrel. 

The London market started the day yesterday on a softer note, while the New York market started the day with modest buoyancy, but with the London market recovering to close to par and the New York market maintaining its buoyancy into the early afternoon trade.   As the afternoon progressed the New York market attracted further support and peaked at gains of 1.80 usc/Lb. for the day and the London market started to show some modest buoyancy, but with both market coming off the boil and heading back to end the day only close to par for the day. 

The London market ended the day on a near to steady note and having recovered 81.8% of the earlier losses of the day by the close, while the New York market likewise ended the day on a near to steady note and with 25% of the modest losses of the day intact.   This close and with the markets relatively steady for the day does not provide much in the way of direction, to make one suspect that with the weaker dollar in play that the markets shall remain hesitantly steady to perhaps even show some modest buoyancy for early trade today, against the prices set yesterday, as follows: 

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

MAR   1800 – 2

MAY   1752 – 2                                                MAY    118.85 – 0.10

JUL    1781 – 2                                                 JUL    121.00 – 0.05 

SEP    1781 – 3                                                SEP    123.25 + 0.05

NOV   1782 – 5                                                DEC    126.65 + 0.05

JAN    1784 – 7                                                MAR   130.10 + 0.05

MAR   1794 – 9                                                MAY   132.40 unch

MAY   1807 – 9                                                 JUL    134.45 – 0.05

JUL    1819 – 9                                                 SEP    136.25 – 0.10

SEP    1830 – 9                                                 DEC   138.95 – 0.10