Coffee Market Report November 18 2016

The National Coffee Exports Centre in Nicaragua Cetrex have reported that the countries coffee exports for the month of September were 25,184 bags or 55.24% higher than the same month last year, to total 70,774 bags.  This improved volume has contributed to the countries cumulative coffee exports for the October 2015 to September 2016 coffee year to have been 147,703 bags or 8.37% higher than the previous coffee year, at a total of 1,913,293 bags. 

Following on from this improved performance for the October 2015 to September 2016 coffee year, Cetrex have reported that the countries coffee exports for the month of October were 15,297 bags or 40.68% higher than the same month last year, at a total of 52,902 bags.   One might comment though that most of these October coffee exports would most probably have been related to carryover stocks from the previous harvest, to further underpin the view that Nicaragua had a good 2 million bags plus past crop. 

But with forecasts that unlike the improved new crops that are being forecasted for Mexico, Guatemala and Honduras to the north, that Nicaragua might expect to bring to the fore an approximately 10% smaller new crop from their October to March 2017 harvest, of something in the region of 1.8 million bags.  Such a dip though in terms of the approximate 1.2 million bags increase in the new crops out of Mexico, Guatemala and Honduras that is being forecasted, shall not impact upon the perception for an approximate 1 million bags increase in coffee supply from the Mexican and Central American producer bloc. 

The well-respected USDA Foreign Agricultural Service have forecasted that due to the El Nino drought conditions over late 2015 and the first half of 2016, that the countries coffee production and supply for their April 2016 to March 2017 period was 1,100,000 bags or 11% lower than the previous 2015/2016 marketing year, at a total of 8,900,000 bags.   This decline that they appropriate to 200,000 bags dip in arabica coffee production and 900,000 bags dip in robusta coffee production they foresee shall be further disruptive to the potential robusta coffee exports for the present marketing year, as in the meantime there is a steady rise in the countries domestic market demand for robusta coffees.   Their assessment being that domestic market coffee demand has risen to something in the order of 3.32 million bags, per annum.  

The report does however make note that with the El Nino behind it that there is with the developing new La Nina phenomenon with the Pacific Ocean the prospects for good rains for Indonesia through to at least mid-next year, which shall assist for a recovery in coffee production and for improved coffee export volumes to start to impact by the second half of next year.   But in the meantime, and with tighter robusta coffee supply out of Indonesia for the short to medium term, it reduces the competition for Vietnam and with forecasts for the new Vietnam crop to be perhaps as much a 10% smaller, good reason to believe in medium term buoyancy for the London market. 

The latest weather reports out of Brazil have confirmed that there have been good rains for all of the main coffee districts and including finally, the conilon robusta coffee districts in the north of the state of Espirito Santo, but comments are that these rains in Espirito Santo are perhaps too late to support a big recovery for the next conilon robusta coffee crop.    Albeit that there are forecasts that following on from this year’s relatively dismal conilon robusta crop, that there are prospects for some modest improvement in the coming 2017 conilon robusta coffee crop.   

There are meanwhile and while they are not official, reports that there are discussions in terms of the Brazilian government relaxing regulations to allow for the import of robusta coffees to supplement the shortage in conilon robusta coffee supply to the countries domestic roasters.   Should this factor become reality it would have some impact upon the certified robusta coffee stocks of the London market, which presently included good volumes of 2015 crop conilon robusta coffees and these coffees one would think, would be a natural target for the Brazilian domestic roasters in terms of their robusta coffee imports.   

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 66.24 usc/Lb., while this equates to a 40.65% 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 decrease by 665 bags yesterday; to register these stocks at 1,273,529 bags.  There was meanwhile a larger in volume 2,240 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 15,690 bags. 

The commodity markets and with building confidence in the prospects of a nearby Federal Reserve bank hike in interest rates, continued to encounter a relatively strong U.S. dollar yesterday, but with the markets mixed in trade and with the overall macro commodity index remaining relatively steady for the day.   The Oil, Cocoa, Cotton, Copper, Orange Juice, Wheat, Corn and Soybean markets had a day of buoyancy and the prompt months of the London robusta coffee market were steady, while the Natural Gas, Sugar, New York arabica Coffee, 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 0.10% higher; to see this Index registered at 413.63.   The day starts with the U.S. dollar showing a degree of buoyancy and trading at 1.239 to Sterling and 1.059 to the Euro, while North Sea Oil is steady and is selling at 44.25 per barrel. 

The London market started the day yesterday coming under pressure and trading south of par, while the New York market showed some early buoyancy.   The buoyancy within the New York market was however short lived and the market slipped back into negative territory and along with the forward months of the London market, but with the prompt months of the inverted London market sticking close to par.   Trade was erratic and mostly sideways through the day and with the New York market experiencing a couple of short lived rallies back towards par, before faltering in late trade.    The London market ended the day with the prompt January contract steady, while the New York market ended the day on a soft note and with 69% of the earlier losses of the day intact.   This barely steady close for the London market and the softer nature of the New York market contributes to a negative technical picture for the markets and one might expect to see little better than a near to steady start for early trade today against the prices set yesterday, as follows: 

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

NOV     2220 + 5                                                 DEC   159.30 – 1.95

JAN      2163 + unch                                         MAR   162.95 – 1.45

MAR     2132 – 12                                              MAY   165.30 – 1.45

MAY     2133 – 16                                                JUL   167.35 – 1.50

JUL      2133 – 20                                                SEP   169.20 – 1.45

SEP      2136 – 22                                               DEC   171.65 – 1.40

NOV     2141 – 22                                               MAR   173.75 – 1.35

JAN      2149 – 22                                               MAY   174.85 – 1.30

MAR     2163 – 22                                                JUL   175.70 – 1.25

MAY     2179 – 22                                                SEP   176.45 – 1.20