Coffee Market Report August 20 2018

The latest Commitment of Traders report from the New York arabica coffee market has seen the Non-Commercial Speculative sector of this market increase their net short sold position within the market by 3.54% over the week of trade leading up to Tuesday 14th. August; to register a new net short sold position of 100,533 Lots.   This net short-sold position which is the equivalent of 28,500,660 bags has most likely been further increased, following the period of mixed but overall softer trade which has since followed. 

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Non-Commercial sector of this market decrease their net short sold position within this market by 6.15% during the week of trade leading up to Tuesday 14th. August; to register a net short sold position of 31,633 Lots on the day.  This net short sold position which is the equivalent of 5,272,167 bags has most likely been increased again, following the period of mixed but overall softer trade, which has since followed. 

The soft nature of the reference prices of the New York arabica coffee market is already dictating that many arabica coffee farmers globally are struggling to break even with their arabica coffee production and one would speculate that this is going to have a medium-term impact upon yields, as farmers have the inability to finance the full range of inputs to maintain their crops.   While even with the relatively lower costs of producing robusta coffees, the reference prices of the London market are heading lower and could if they decline further, start to become threatening for medium to longer term global yields. 

The problem really is not so much the potential 4% surplus coffee supply that is being forecast for the forthcoming October 2018 to September 2019 coffee year, but the fact that the speculative and fund sectors of the market who are short sold of more than the equivalent of the Vietnam crop.   This sector of the market now having short sold in excess of 20% of the potential global coffee supply for the forthcoming coffee year, have accentuated the negative prices that would be expected from a modest surplus supply. 

Presently there are no indications other than some excessive monsoon rain issues in south west India of any threatening climatic issues being due for the main stream coffee producers, but weather is of late very unpredictable and could pop up to significantly change coffee market sentiment in the future.  Making one speculate that at such time as the speculative and fund sectors of the market and followed by the presently bearish industry sector of the market change their view of the market and one that is so heavily short sold, that the short covering rally would be potentially very aggressive and would take a sharp upside track. 

The November 2018 to December 2018 contracts arbitrage between the London and New York markets broadened on Friday, to register this at 33.94 usc/Lb., while this equates to 32.42% 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 13,095 bags on Friday; to register these stocks at 2,128,150 bags.  There were meanwhile a larger in number 18,862 bags increase in the number of bags pending grading for this exchange; to register these pending grading stocks at 238,625 bags. 

The commodity markets encountered a softening U.S. Dollar and had a mixed day on Friday, to see the overall macro commodity index showing a degree of buoyancy for the day.  The Oil, Natural Gas, Copper, Orange Juice, Wheat, Gold and Silver markets ended the day on a positive note, while the Sugar, Cocoa, Coffee, Cotton, 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 0.49% higher; to see this index registered at 400.27.  The day starts with the U.S. Dollar showing some degree of buoyancy and trading at 1.273 to Sterling, at 1.142 to the Euro and with the dollar buying 3.912 Brazilian Real, while North Sea Oil is tending a little softer and is selling at US$ 70.00 per barrel. 

The London a New York markets started the day on Friday with early buoyancy but this was short lived and both markets fell back into modest negative territory in late morning trade, to set a softer stance for the early afternoon trade.   As the afternoon progressed the London market attracted sell stops and took a sharp downside track to twenty-eight-month lows, before bouncing back from the lows, while the New York likewise took a less dramatic downside track before bouncing back from hitting near ten-year lows. 

The London market ended the day on a very negative note and 72% of the earlier losses of the day intact, while the New York market ended the day on a negative note and with 43.3% of the earlier losses of the day intact.   This close does not inspire any confidence but despite the negative but perhaps with the evidence of the markets having bounced back from their lows on Friday and the extensive speculative and fund net short sold position within the New York market, there might be some cautious industry fixation and short covering support due for early trade today.   Against the prices set on Friday, as follows: 

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

SEP    1643 – 25                                             SEP    101.20 – 0.50

NOV   1560 – 36                                             DEC    104.70 – 0.65

JAN    1551 – 35                                             MAR   107.95 – 0.60

MAR   1558 – 36                                             MAY   110.30 – 0.60

MAY   1571 – 36                                              JUL    112.70 – 0.60

JUL    1586 – 36                                              SEP    115.10 – 0.55

SEP    1603 – 32                                              DEC   118.40 – 0.60

NOV   1617 – 32                                              MAR   121.65 – 0.60

JAN    1629 – 32                                              MAY   123.75 – 0.55

MAR   1640 – 32                                              JUL    125.70 – 0.65