Coffee Market Report July 25 2018

There has been over four weeks of hot and dry weather over central and south El Salvador and eastern Honduras, which is starting to be a matter of concern for the coffee farmers in this region.   Especially so with the new crop coffee cherries starting to develop and the coffee trees requiring good ground water moisture levels, so as to promote cherry development towards the new crop harvest that is due to start during the last quarter of this year. 

How much this weather issue might negatively affect the forecasted new crops from the affected districts in Honduras and El Salvador which have been forecast at around 7.4 million bags and 600,000 bags respectively, has not yet been reported.   However, if this dry weather continues for much longer, one can presume that it shall start to trigger some negative crop forecasts and a factor that could start to impact upon speculative sentiment within the New York market. 

But in the meantime, and with the Brazilian coffee processing association Associação Brasileira da Indústria de Café (ABIC) having reported that they agree with the general reports that the new crop that is presently in harvest and is furthermore a good quality crop, the speculative and fund sectors of the New York market remain with their bearish sentiment.   Sentiment that has seen these sectors of the market short selling the market over the course of this year, to force the reference prices of this market to levels that make it difficult for many arabica coffee producers to profit from their coffees sales. 

The physical coffee market that is dominated by the main consumer markets within the northern hemisphere is at best lacklustre in nature, with many major players more focused upon the summer holidays than business.   While with an extended period of hot weather being experienced within many of the main Western European consumer markets, one might guess that it has been having some impact upon coffee consumption within these markets.  The weather favouring cold rather than hot beverages, for the present. 

The September 2018 to September 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 34.16 usc/Lb., while this equates to 30.79% 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 837 bags on Friday; to register these stocks at 2,058,327 bags.  There were meanwhile a larger in number 2,390 bags decrease in the number of bags pending grading for this exchange; to register these pending grading stocks at 39,490 bags. 

The commodity markets were mixed in trade yesterday, to see the overall macro commodity index taking something of a sideways track for the day.  The Oil, Natural Gas, Sugar, London Robusta Coffee, Copper, Soybean and Gold markets ended the day on a positive note, while the Cocoa, New York arabica Coffee, Cotton, Orange Juice, Wheat, Corn 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 0.02% lower; to see this index registered at 407.21.  The day starts with the U.S. Dollar near to steady and trading at 1.315 to Sterling, at 1.169 to the Euro and with the dollar buying 3.747 Brazilian Real, while North Sea Oil is near to steady and is selling at US$ 73.35 per barrel. 

The London and New York markets started the day yesterday trading erratically close to par and with the New York market soon attracting support, to move into modest positive territory and to see the markets maintain this stance, into the early afternoon trade.  As the afternoon progressed the London market started to attract modest support and to move up into modest positive territory, while the New York market came under pressure and moved south into negative territory.    This London market continued to close off the day on a positive note, while the New York market having bounced off the lows, took a sideways negative track through to the close. 

The London market ended the day on a positive note and with 87.5% of the earlier gains of the day intact, while the New York market ended the day on a negative note and with 46.7% of the earlier losses of the day intact.   This mixed close provides little indication of direction, but with the soft reference prices of the New York market and the Brazil Real a little firmer in nature, the perspective of slow arabica coffee sales from Brazil might be supportive for sentiment within the New York market.  Thus, the possibility for a near to steady start for the London market and a steady to marginally firmer start for the New York market for early trade today, against the prices set yesterday, as follows: 

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

JUL    1787 + 2 

SEP    1693 + 7                                               SEP    110.95 – 0.70

NOV   1680 + 4                                               DEC    114.25 – 0.80

JAN    1680 + 2                                               MAR   117.85 – 0.80

MAR   1689 + 2                                               MAY   120.30 – 0.80

MAY   1701 + 2                                                JUL    122.70 – 0.80

JUL    1714 + 2                                                SEP    125.05 – 0.80

SEP    1725 + 2                                                DEC   128.45 – 0.75

NOV   1737 + 2                                                MAR   131.70 – 0.70

JAN    1749 + 2                                                MAY   133.75 – 0.70