Coffee Market Report July 19 2018

The coffee markets remain devoid of any form of striking fundamental news, which can come to the fore to provide support for the markets.    Rather and with many of the industry buyers on holiday and physical trade lacklustre at best, the markets remain in the hands of the speculative and fund sectors of the markets.  These sectors of the market continue to focus upon the negative factor of the larger new Brazil coffee crop that is soon to start coming to the market and to the forecast for another large new Vietnam coffee crop that is due to start coming to the market in only four months’ time. 

Meanwhile the Australian Bureau of Meteorology ENSO report that while the conditions within the Pacific Ocean are presently neutral, that they still foresee at least a 50% chance for a new El Niño phenomenon to develop by the end of the year.   The prospects for an El Niño are however not necessarily a major worry in terms of Pacific Rim coffee producing countries 2019 crops, as if it were to be a modest El Niño it would not be too threatening to the coming years crops.   Thus, for the present, this factor has not impact upon market sentiment. 

One might comment though that with the prevailing coffee market prices and despite some relief for some producers from the muscle that has been shown by the U.S. dollar, that many coffee farmers globally will be struggling to make any profit out of their coffee crops.  This has to impact upon the affordability of the host of fertiliser and chemical inputs that are necessary to maintain yields and on the longer term and with global coffee consumption steadily rising, shall be a factor that shall impact upon supply and market sentiment.  

This factor of dismal returns from farming coffee is also threatening to reduce the land related to coffee farming within many of the coffee producing countries, as there are many reports emanating from a number of coffee producer countries of farmers looking to move to alternative crops.   Many of these crops in terms of the more sensitive arabica coffee producers, far less expensive to grow and maintain.   This being a further factor that shall no doubt in time, further contribute towards a deficit coffee supply and one might speculate that during the course of the coming year that the global coffee industry could well be looking at a sharply higher coffee price range. 

The September 2018 to September 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 33.26 usc/Lb., while this equates to 30.75% 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 4,884 bags yesterday; to register these stocks at 2,055,685 bags.  There were meanwhile a smaller in number 2,542 bags decrease in the number of bags pending grading for this exchange; to register these pending grading stocks at 33,484 bags. 

The commodity markets were mixed in trade yesterday and with the U.S. dollar relatively steady for the day, to see the overall macro commodity index taking something of a steady track for the day.   The Oil, Cotton, Copper, Corn and Soybean markets ended the day on a steady to buoyant note, while the Natural Gas, Sugar, Cocoa, Coffee, Orange Juice, Wheat, Gold and Silver markets ended the day on a softer note.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.16% lower; to see this index registered at 405.29.  The day starts with the U.S. Dollar steady and trading at 1.307 to Sterling, at 1.164 to the Euro and with the dollar buying 3.851 Brazilian Real, while North Sea Oil is tending softer and is selling at US$ 71.45 per barrel. 

The London and New York markets started the day yesterday on a softer note, but with the London market soon picking up some support and moving back to trade marginally south of par.   However, as the afternoon progressed and with the somewhat oversold New York market coming under further pressure, the London market lost some weight and followed the New York market south, but with both markets bouncing off the lows in late trade to reduce the losses of the day. 

The London market ended the day on a negative note but having recovered 77% of the earlier losses of the day by the close, while the New York market ended the day on a negative note and with 62.9% of the earlier losses of the day intact.   This close does very little to inspire any degree of confidence, but with the evidence of both markets having the ability to bounce off the lows yesterday and the thought that the New York market in particular is somewhat over sold, it might assist towards some degree of industry support to assist to steady the markets for early trade today, against the prices set yesterday, as follows: 

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

JUL    1739 – 14                                              JUL    104.60 – 1.10 

SEP    1651 – 3                                               SEP    108.15 – 1.10

NOV   1641 – 4                                               DEC    111.60 – 1.15

JAN    1643 – 3                                               MAR   115.25 – 1.10

MAR   1653 – 4                                               MAY   117.75 – 1.05

MAY   1665 – 4                                                JUL    120.20 – 1.00

JUL    1678 – 3                                                SEP    122.55 – 1.00

SEP    1689 – 1                                                DEC   126.00 – 0.90

NOV   1701 – 1                                                MAR   129.30 – 0.90

JAN    1712 – 1                                                MAY   131.40 – 0.85