Coffee Market Report June 07 2018

The New York coffee market remained under pressure in late trade yesterday, with the fears of the truckers strike in Brazil disrupting deliveries of the new crop now over, with the termination of the strike and focus once again, upon the prospects of the significantly larger crop.  Forecasts for this new crop which earlier in the year were mostly talking in terms of around 60 million bags and with the harvest now started, being further inflated and with many now talking in terms of well over 60 million bags. 

This new Brazil crop factor and the potential negative nature of the crop and it potential to fuel surplus overall global coffee supply for the second half of this year and into the first half of next year, is restraining consumer market industry buying intensity.  Many industry buyers fear stepping in with any buying aggression, as they fear that perhaps the presently soft market and despite the speculative and fund sectors of the market are already significantly sold short, that there might still be some downside potential to the market.  Especially so as this is being accompanied by a steadily softening Brazil Real relative to the dollar and therefore the reference prices of the international coffee markets, which tends to indicate that the soft international coffee prices might not dampen selling spirts in terms of internal market sales of new crop Brazil coffees. 

Meanwhile the evidence of the Colombian coffee production for the present October 2017 to September 2018 that started off with more modest figures, had almost caught up by May with the volume at the same time last year, is not assisting to buoy sentiment within the market.  As does the slow and erratic but nevertheless overall increase in the size of the certified arabica coffee stocks of the New York market, do little to encourage support for the market. 

This is not assisting the farmers within the fine washed arabica coffee Mexican and Central American producer bloc, who have been obliged to market their October 2017 to February 2018 new crop against the soft reference prices of the New York market.   With farm gate prices for most farmers around 15% lower than they earned from the previous crop and even the previous crop prices having been nothing very special, which one would think shall impact on the affordability of fertiliser and chemical inputs for their forthcoming crop for many farmers.    A factor that is impossible to accurately quantify but has the potential to bring to the fore a smaller overall crop from this leading arabica coffee producer bloc for the next October 2018 to September 2019 coffee year, which is a factor that might come to the fore later in the year and to inspire some degree of speculative short covering and market support. 

Weather conditions for the coffee producers globally are generally normal and conducive to good production levels, but there is still the unlikely but not impossible matter of strong cold fronts and frost for some of Brazil’s main coffee districts.   The clear nights that come around the full moon period if accompanied by a cold front have historically been the most threatening time for frost and thus, with full moons due on Thursday 28th. June and Friday 27th. July, one might wish to keep an eye on the month end weather forecasts for South East Brazil for both June and July this year. 

The September 2018 to September 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 41.81 usc/Lb., while this equates to 32.68% 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 5,967 bags yesterday; to register these stocks at 2,029,648 bags.  There was meanwhile a larger in number 8,487 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 39,503 bags. 

The commodity markets had a mixed day yesterday, but with the overall macro commodity index showing some degree of buoyancy for the day.  The Natural Gas, Sugar, Cocoa, London robusta Coffee, Cotton, Copper, Orange Juice, Wheat and Silver markets ended the day on a positive note, while the Oil, Corn, Soybean and Gold markets ended the day on a softer note.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.43% higher; to see this index registered at 434.32.  The day starts with the U.S. Dollar tending softer and trading at 1.343 to Sterling, at 1.180 to the Euro and with the dollar buying 3.847 Brazilian Real, while North Sea Oil is tending softer in early trade and is selling at US$ 74.10 per barrel. 

The London and New York markets started the day yesterday trading marginally below par and with the New York market remaining on a sideways track close to par into the early afternoon trade, while the London market had come under pressure and slipped further into negative territory.  As the afternoon progressed the London market bounced off the lows and returned to trade around par, while the New York market after a brief period of trading with some buoyancy above par, soon came under pressure and moved south into negative territory and heading towards a late in the day soft close. 

The London market ended the day on a steady to positive note and with 50% of the earlier modest gains of the day intact, while the New York market ended the day on a very negative note and with 96% of the earlier losses of the day intact.   This close does little to inspire, but one might once again expect to see some degree of cautious hesitancy coming to the fore, to set the markets for a steady start for early trade today, against the prices set yesterday, as follows: 

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

JUL    1751 + 4                                               JUL    118.25 – 1.20 

SEP    1736 + 3                                               SEP    120.55 – 1.20

NOV   1739 + 2                                               DEC    124.00 – 1.30

JAN    1744 + 1                                               MAR   127.55 – 1.30

MAR   1755 + 1                                               MAY   129.85 – 1.30

MAY   1766 + 1                                               JUL    132.00 – 1.20

JUL    1778 + 1                                               SEP    133.95 – 1.15

SEP    1790 unch                                            DEC   136.60 – 1.15

NOV   1804 unch                                            MAR   139.20 – 1.10

JAN    1821 + 7                                               MAY   140.95 – 1.00