Coffee Market Report August 10 2018

The respected Brazilian analysts Safras & Mercado have reported that so far approximately 82% of the close to 60.5 million bags new coffee crop have been harvested, which would relate to 34 million bags of arabica coffee and 16 million bags of conilon robusta coffees, with approximately 26.5 million more bags of arabica coffees still to be harvested.   While they also report that close to 38% of this new crop has already been sold, to the combination of domestic industry and exporter buyers. 

The Coffee Exporters Association of Brazil Cecafé have reported that Brazil’s green coffee exports for the month of July were 27.7% higher than the same month last year, at a total of approximately 2.03 million bags.   The association made mention of the ongoing congestion within the main coffee export ports in Brazil, which have slowed exports and inferring that without this problem, that the export volume for the month might have been higher. 

The traditionally conservative Brazilian Institute of Geography and Statistics IBGE have forecast that the new Brazil crop shall be 57.2 million bags, which shall be made up by 43.1 million bags of arabica coffees and 14.1 million bags of conilon robusta coffees.   The IBGE is seen to be usually around 10% below reality with their forecasts and there fore if one is to extrapolate this forecast, it would seemingly confirm the many other forecasts that peg this new crop at close to 63 million bags and some even forecasting some higher numbers. 

The Vietnam Customs Authorities have reported that the country exported 2,212,950 bags of coffee in July, which is marginally higher than the earlier estimate for exports of 2.17 million bags for the month.  This they say has contributed to the countries cumulative coffee exports for the first seven months of this year to be 12.4% higher than the same period last year, at a total of 19.5 million bags. 

They do note though that selling against this year’s soft coffee prices, that the revenue from exports for the first seven of this year is 4.3% lower than the same period last year, at a total of 2.25 billion U.S. Dollars.   This well illustrating the problems that global coffee producers are encountering, in terms of the negative impact of the short-sold coffee terminal markets. 

The U.S.A. National Weather Service’s Climate Prediction Centre CPC have reported that they now foresee a 60% to 70% chance for a new El Niño phenomenon to develop within the Pacific Ocean, during the last quarter of this year.  One would comment that if a new El Niño is only a modest one, it would not be significantly damaging for weather conditions for the Pacific Rim coffee producing countries and likewise, to coffee producing countries further afield.  But with the chances growing for such an occurrence for the last quarter of the year and the first quarter of next year and a possibility that it could prove to be a severe El Niño, it is a factor that shall be closely watched over the coming months. 

This forecast that might indicate some uncertainty over the prospects for the forthcoming October to March Brazil rain season for South East Brazil, might temporarily retard new coffee crop sales within the internal market in Brazil, as farmers await direction from the quality of the rains and the related flowerings for the next 2019 crop.   A factor that might assist to limit the downside potential for the short term in the New York market, which is anyhow, already significantly short sold by the speculative and fund sectors of the market. 

The November 2018 to December 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 36.32 usc/Lb., while this equates to 32.79% 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 2,480 bags yesterday; to register these stocks at 2,071,961 bags.  There were meanwhile a larger in number 10,365 bags increase in the number of bags pending grading for this exchange; to register these pending grading stocks at 139,902 bags. 

The commodity markets were mixed in trade yesterday, but with many markets taking a softer track, to see the overall macro commodity index taking something of a sideways track for the day.   The Natural Gas, Sugar, London robusta Coffee, Cotton, Copper, Orange Juice and Silver markets ended the day on a positive note, while the Oil, Cocoa, New York arabica Coffee, Wheat, 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 0.09% higher; to see this index registered at 408.90.  The day starts with the U.S. Dollar showing some degree of follow through muscle and trading at 1.280 to Sterling, at 1.146 to the Euro and with the dollar buying 3.801 Brazilian Real, while North Sea Oil is near to steady and is selling at US$ 70.35 per barrel. 

The London and New York markets started the day yesterday trading close to par, but with the London market soon picking up support and moving up into positive territory, to see the markets taking a mixed stance into the early afternoon trade.  As the afternoon progressed, the London market maintained its buoyancy and the New York market remained mostly within negative territory, to see the markets heading on towards a mixed close for the day. 

The London market ended the day on a very positive note and with 100% of the gains of the day intact, while the New York market ended the day on a negative note but having recovered 75% of the earlier losses of the day by the close.  The markets encounter the negative aspects of a weaker Brazil Real and a robust U.S. dollar, but with the ability of the New York market to bounce back from the lows yesterday and with the speculative sector possibly over sold, it might contribute to some degree of caution and assist towards a steady start for early trade today against the prices set yesterday, as follows: 

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

SEP    1671 + 16                                             SEP    107.65 – 0.20

NOV   1641 + 11                                             DEC    110.75 – 0.25

JAN    1633 + 8                                               MAR   113.95 – 0.35

MAR   1641 + 8                                               MAY   116.20 – 0.40

MAY   1654 + 8                                                JUL    118.60 – 0.40

JUL    1667 + 8                                                SEP    120.95 – 0.40

SEP    1680 + 8                                                DEC   124.35 – 0.45

NOV   1692 + 8                                                MAR   127.65 – 0.45

JAN    1704 + 8                                                MAY   129.70 – 0.40

MAR   1715 + 8                                                JUL    131.70 – 0.40