Coffee Market Report June 08 2018

The cold front coming in over the south of Brazil and most of the main coffee districts is not foreseen to be frost threatening and has brought with it rains for many of the arabica coffee districts, which is delaying the new arabica coffee harvest for many farmers.   While in terms of the new crop harvest, the respected Brazilian analyst Safras & Mercado have estimated that so far 29% of the new conilon robusta coffee harvest has been concluded, as against only 9% of the new arabica coffee crop harvest. 

Thus, despite some short rain delays for some farms at present, the new Brazil crop is starting to come to the fore and with the new crop harvest due to start to bring good volumes of conilon robusta coffees to the market during this month, to be followed by good volumes of arabica coffees during July.   But the question remains if despite some assistance from a steadily weakening Brazil currency that takes some of the bite out of the negative aspects of the soft reference prices of the coffee terminal markets, if many farmers with forward sales of new crop coffees in hand might start to take advantage of the relatively low interest rates to hold back coffees and show some degree of price resistance.   This in a bid to pressure the countries exporters, who would have good volumes of forward sales commitments to fulfill. 

The respected U.S. Department of Agriculture USDA Foreign Agriculture Service have lowered their earlier estimate of the new Vietnam coffee crop by 2.01%, to now estimate that this crop that is presently being sold to be a still substantial 29.3 million bags.   While they have forecast that the next crop that is due to be harvested over October 2018 to January 2019, shall be a 2.05% larger crop, which shall total 29.9 million bags. 

This next Vietnam crop the USDA forecast shall be made up by 28.5 million bags of robusta coffees and 1.4 million bags of arabica coffees, while they estimate that with a domestic consumption of close to 3 million bags.  This would indicate that with the potential for fair levels of carry-over stocks into the new crop, that it shall leave substantial volumes of coffee for export in the form of green coffee and value added soluble coffees for the next October 2018 to September 2019 coffee year. 

This report that foresees another bumper coffee crop for Vietnam to come and on top of what is generally perceived to be a bumper new crop for Brazil, does little to assist market sentiment and is very evident in the prevailing soft prices of the coffee terminal markets.   Likewise, the relatively lethargic nature of the consumer market industry buyers, who are lacklustre in their buying demand and ahead of the pending slow summer holiday season for the main consumer markets in the northern hemisphere. 

The September 2018 to September 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 39.85 usc/Lb., while this equates to 33.77% 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 4,285 bags yesterday; to register these stocks at 2,033,933 bags.  There was meanwhile a larger in number 8,828 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 30,675 bags. 

The commodity markets had a mixed day yesterday, to see the overall macro commodity index taking a sideways track for the day.   The Oil, Natural Gas, Cotton, Copper, Wheat, Gold and Silver markets ended the day on a positive note, while the Sugar, Cocoa, Coffee, Orange Juice, Corn and Soybean markets ended the day on a softer note.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.08% lower; to see this index registered at 433.97.  The day starts with the U.S. Dollar steady and trading at 1.342 to Sterling, at 1.180 to the Euro and with the dollar buying 3.902 Brazilian Real, while North Sea Oil is tending softer in early trade and is selling at US$ 75.50 per barrel. 

The London market started the day yesterday trading marginally south of par, while the New York market started the day with modest buoyancy and to see the markets take this mixed stance, into the early afternoon trade.   As the afternoon progressed and with the America’s entering the field of play and a weak Brazil currency having an influence, the New York market slipped back to join the London market in negative territory and to see both markets extending their losses.  But while the London market managed to bounce back from the lows and to limit its losses for the day, the New York market attracted sell stops and accentuated its losses towards a soft close for the day. 

The London market ended the day on a negative note but having recovered 51.9% of its earlier losses of the day, while the New York market ended the day on a very negative note and with 100% of the earlier losses of the day intact.   This close paints a very negative picture for the charts, but one would think that with the perception that the speculative and fund sectors might be somewhat oversold, that there is the prospect for another cautious and hesitantly steady start due for early trade today against the prices set yesterday, as follows: 

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

JUL    1733 – 18                                              JUL    115.70 – 2.55 

SEP    1723 – 13                                             SEP    118.00 – 2.55

NOV   1729 – 10                                             DEC    121.50 – 2.50

JAN    1734 – 10                                             MAR   125.00 – 2.55

MAR   1742 – 13                                             MAY   127.35 – 2.50

MAY   1753 – 13                                             JUL    129.50 – 2.50

JUL    1766 – 12                                             SEP    131.40 – 2.55

SEP    1777 – 13                                             DEC   134.00 – 2.60

NOV   1791 – 13                                             MAR   136.60 – 2.60

JAN    1808 – 13                                             MAY   138.25 – 2.70