Coffee Market Report June 26 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 30.07% over the week of trade leading up to Tuesday 19th. June; to register a new net short sold position of 66,156 Lots.   Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 18.28%, to register a net long position of 39,503 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 25.72%, to register a net short sold position of 60,409 Lots.  This net short sold position which is the equivalent of 17,125,684 bags has most likely been little modestly reduced, following the period of mixed by overall modestly more positive trade that has since followed and likewise, that of the managed money fund sector of the market. 

The evidence of this extensive net short sold status of the New York market would tend to indicate that the market might be considered to be somewhat oversold, but with a number of respected reports forecasting a global coffee surplus supply of between 6 million to 8 million bags for the coming October 2018 to September 2019 coffee year, there is little in the way of fundamental news to encourage short term speculative short covering. 

But meanwhile the coffee producers with steadily rising production costs that come with the natural forces of inflation in terms of labour, farm inputs and capital equipment replacement requirements, are obliged to sell their coffees against the dismal reference prices of the coffee terminal markets.   This has to finally have some impact upon the medium to longer term production yields within many producer countries, as the farmers struggle to finance the full range of inputs that are necessary for the health of their coffee trees and their farm yields. 

Meanwhile the weather conditions for coffee producers globally have so far this year, brought to the fore nothing other than the prospects for good growing conditions and with no forecasts as of yet, for any potential climatic problems due to develop later in the year.   Therefore, and while one can never completely discount the chances of frost in Brazil, the weather has no impact upon market sentiment for the speculative fund sector of the coffee markets, who hold the reins of the market firmly in hand. 

The September 2018 to September 2018 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 41.18 usc/Lb., while this equates to 35.14% 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 177 bags yesterday; to register these stocks at 2,054,255 bags.  There were meanwhile a larger in number 888 bags increase in the number of bags pending grading for this exchange; to register these pending grading stocks at 25,586 bags. 

The commodity markets were mostly all of the back foot yesterday, to see the overall macro commodity index taking a downside track for the day.   The New York arabica coffee market nevertheless managed to buck the trend and end the day on a positive note and the WTI US Oil, Sugar, Cotton, Gold and Silver markets ended the day on a modestly softer note, but with the Brent Oil, Natural Gas, Cocoa, London robusta Coffee, Copper, Orange Juice, Wheat, Corn and Soybean markets ending the day with more significant losses for the day.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.22% lower; to see this index registered at 419.04.  The day starts with the U.S. Dollar steady and trading at 1.327 to Sterling, at 1.170 to the Euro and with the dollar buying 3.775 Brazilian Real, while North Sea Oil is near to steady in early trade and is selling at US$ 73.35 per barrel. 

The London market started the day yesterday trading marginally south of par, while the New York market started the day trading with modest buoyancy and to see the markets taking this mixed stance, into the early afternoon trade.   As the afternoon progressed the London market started to come under pressure and to start on a steady downside track for the day, while the New York market held steady for most of the day and to shrug off a brief flurry of late selling that took forced a dip into negative territory, before swiftly recovering to close of the day within positive territory. 

The London market ended the day on a very negative note and with 78.4% of the earlier losses of the day intact, while the New York market ended the day on a positive note and with 38.5% of the earlier gains of the day intact.   This close contributes little to market sentiment but with perhaps only the evidence of the extensive net short sold status of the New York market and the withdrawal of many producers from selling against the market, likely to limit the downside of this market.   Thus, one might expect to see something of a cautious and hesitantly steady start for the markets for early trade today, against the prices set yesterday, as follows: 

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

JUL    1678 – 46                                              JUL    114.15 + 0.30 

SEP    1676 – 29                                             SEP    117.20 + 0.25

NOV   1675 – 27                                             DEC    120.60 + 0.25

JAN    1681 – 26                                             MAR   124.15 + 0.25

MAR   1694 – 22                                             MAY   126.50 + 0.20

MAY   1706 – 22                                              JUL    128.75 + 0.15

JUL    1718 – 22                                              SEP    130.80 + 0.20

SEP    1731 – 22                                              DEC   133.80 + 0.25

NOV   1745 – 22                                              MAR   136.75 + 0.30

JAN    1750 – 22                                              MAY   138.50 + 0.30