Coffee Market Report March 27 2018

The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market increase their net short sold position within the market by 4.79% over the week of trade leading up to Tuesday 20th. March; to register a new net short sold position of 59,610 Lots.   Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 2.37%, to register a net long position of 40,955 Lots on the day. 

Over the same week, the Non-Commercial Speculative sector of this market increased their net short sold position within this market by 9.54%, to register a net short sold position of 57,373 Lots.  This net short sold position which is the equivalent of 16,264,991 bags has most likely been marginally increased to perhaps little changed, following a period of mixed but overall marginally negative trade that has since followed and likewise, that of the managed money fund sector of the market. 

We have a small correction on the Ugandan figures reported on Friday.  The Uganda Coffee Development Authority have reported that the countries coffee exports for the month of February were 5,846 bags or 1.47% lower than the same month last year, at a total of 390,677 bags.  This following a good performance in October and November last year, results in the cumulative coffee exports for the first five months of the present October 2017 to September 2018 coffee year to still be 160,376 bags or 8.7% higher than the same period in the previous coffee year, at a total of 2,003,650 bags. 

There are now several new crop forecasts for the 2017 Brazil crop that talk in terms of more than 60 million bags and with one respected trade house talking it up to as high as 65 million bags, to continue to fuel bearish sentiment within the coffee terminal markets.   While with the prevailing soft nature of the international coffee prices, some estimate that possibly as little as only 20% of the forthcoming new Brazil coffee crop has been forward sold and hedged against mostly the New York arabica coffee market. 

This latter factor of slow forward selling activity does bring with it the threat of increasing volumes of selling still to come to the market and with the potential for a surplus conilon robusta coffee crop for this year and perhaps as much as 4 million bags to be exported, it is a threat factor for both the New York and London markets. 

However, with the Brazil interest rate now down to a historic 6.5% low and unless there is some dramatic improvement in the international coffee prices or an unforeseen collapse in the value of the Real, one might speculate that many of the larger arabica coffee farmers in Brazil shall look to rebuild coffee stocks during the second half of the year, rather than to aggressively sell their larger arabica coffee harvest.  Thus, the new larger crop is perhaps not as much of a threat for the New York market but remains something of a threat for the London market, as the lower cost conilon robusta coffee farmers are more likely to be the aggressive sellers of new crop coffees. 

The May 2018 to May 2018 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 41.58 usc/Lb., while this equates to 35.19% 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 4,300 bags yesterday; to register these stocks at 1,940,567 bags.  There were meanwhile a larger in number 8,266 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 25,669 bags. 

The commodity markets mostly did not benefit from some further weakening of the U.S. dollar yesterday to seem many markets on the back foot for the day, which resulted in the overall macro commodity index being flat to marginally softer for the day.   The Natural Gas, Cocoa, New York arabica Coffee, Cotton, Orange Juice, Gold and Silver markets had a day of buoyancy, while the Oil, Sugar, London robusta Coffee, Copper, Wheat, Corn and Soybean markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.05% lower; to see this index registered at 424.08.  The day starts with the U.S. Dollar steady and trading at 1.423 to Sterling, at 1.245 to the Euro and with the dollar buying 3.311 Brazilian Real, while North Sea Oil is tending softer and is selling at US$ 69.20 per barrel. 

The London and New York markets started the day yesterday trading at par to marginally above par and with both markets taking a steady stance, into the early afternoon trade.  As the afternoon progressed the London market slipped back into negative territory and with the New York market struggling to remain close to par, but this was short lived and the New York market attracted some short covering support and move back up into positive territory, while the London market recovered to trade close to par.  

The London market ended the day on a modestly negative note but having recovered 87.5% of the earlier losses of the day, while the New York market ended the day on a positive note and with 59.4% of the earlier gains of the day intact.  This close and with the day ending on a somewhat steady note is likely to assist towards a follow through hesitantly steady start for early trade today against the prices set yesterday, as follows: 

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

MAR   1736 – 5

MAY   1688 – 2                                                MAY    118.15 + 0.95

JUL    1715 – 6                                                 JUL    120.20 + 0.80 

SEP    1716 – 9                                                SEP    122.45 + 0.75

NOV   1720 – 9                                                DEC    125.90 + 0.75

JAN    1725 – 9                                                MAR   129.40 + 0.75

MAR   1738 – 8                                                MAY   131.70 + 0.70

MAY   1751 – 9                                                 JUL    133.80 + 0.70

JUL    1765 – 9                                                 SEP    135.70 + 0.70

SEP    1778 – 9                                                 DEC   138.50 + 0.75