Coffee Market Report August 22 2018

Brazil and the World’s largest coffee cooperative Cooxupé have reported that so far, their farmer members have harvested approximately 83.8% of their new crop, which lags behind the 92.1% factor at the same time last year.   But one would adjudge that with this year’s crop being significantly larger than last year’s crop, that their farmers have nevertheless already harvested more coffee than they had at the same time last year. 

With the disaster for the coffee farmers in Honduras ahead of the new crop harvest in terms of the soft nature of the reference prices of the New York arabica coffee market, the countries congress is expected to approve a fund to the value of the equivalent of 200 million U.S. dollars, to provide loans to their coffee farmers. 

One might comment in terms of the potential for a new crop of approximately 7.4 million bags, that this would equate to the equivalent of approximately 20.41 usc/Lb., which would if the market does not recover from the prevailing price levels, still result in difficult times for many of the Honduras coffee farmers in the coming months.   But there is no doubt that the prevailing arabica coffee prices shall eventually have some impact upon yields and that with consumption steadily rising, that there shall eventually be a significant longer-term recovery in prices, which would enable the Honduras coffee farmer to finance the repayment of their loans. 

One might also speculate that the effects of price can be expected to not only impact upon the farm inputs of fertilisers and chemicals, but shall hamper ability of the larger farmers to finance their harvesting costs.   This is likely to force many fine washed arabica coffee farmers to do less picking rounds and increase the percentages of under and over ripe cherries being harvested, which could result in overall lower percentages of premium quality coffee coming to the fore from the new Central American and Mexican coffee crops. 

But potential quality issues from the new Mexican and Central American crops aside, the volume shall still be there and the markets shall still be looking at Mexico and Central America to contribute to the overall short to medium term surplus coffee supply.   A factor continues to fuel bearish sentiment, on the part of the speculative and fund sectors of the coffee markets.  

The November 2018 to December 2018 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 30.99 usc/Lb., while this equates to 30.44% 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 4,415 bags yesterday; to register these stocks at 2,142,210 bags.  There were meanwhile a larger in number 10,250 bags decrease in the number of bags pending grading for this exchange; to register these pending grading stocks at 215,685 bags. 

The commodity markets encountered a further softening U.S. Dollar and had a mixed day yesterday, to see the overall macro commodity index taking a modest upside track for the day.  The Oil, Natural Gas, Sugar, Cocoa, New York arabica Coffee, Cotton, Copper, Gold and Silver markets ended the day on a positive note, while the London robusta Coffee, Orange Juice, Wheat, 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 0.27% higher; to see this index registered at 401.00.  The day starts with the U.S. Dollar steady and trading at 1.291 to Sterling, at 1.157 to the Euro and with the dollar buying 4.059 Brazilian Real, while North Sea Oil is steady and is selling at US$ 72.15 per barrel. 

The London market started the day on a modestly negative note and the New York market with a degree of buoyancy yesterday, to see the markets taking this mixed stance into the early afternoon trade.   As the afternoon progressed the London market came under further pressure and with sell stops in play, to accentuate the losses, while the New York market remained in positive territory.   The New York market then attracted further support and added to its gains and with the London market recovering back to par, but with the New York market coming off the boil and shedding some of the gains and the London market slipping back into modest negative territory in late trade. 

The London market ended the day on a negative note but having recovered and 80.8% of the earlier losses of the day, while the New York market ended the day on a positive note and with 47.2% of the earlier gains of the day intact.   This close albeit that the New York market has bounced off the lows, comes with a further weakening of the Brazil Real and the threat of further selling out of Brazil.   But there is largely a degree of price resistance on the part of the global coffee producers and with the well sold speculative and fund sectors of the markets most likely suffering from a degree of exhaustion, it may assist towards something of a cautious and hesitant steady start for early trade today.    Against the prices set yesterday, as follows: 

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

SEP    1651 – 2                                               SEP      98.95 + 0.70

NOV   1561 – 5                                               DEC    101.80 + 0.85

JAN    1549 – 8                                               MAR   105.15 + 0.80

MAR   1557 – 8                                               MAY   107.55 + 0.80

MAY   1573 – 8                                                JUL    110.00 + 0.80

JUL    1588 – 8                                                SEP    112.40 + 0.80

SEP    1605 – 8                                                DEC   115.90 + 0.85

NOV   1621 – 9                                                MAR   119.20 + 0.85

JAN    1633 – 9                                                MAY   121.15 + 0.80

MAR   1645 – 8                                                JUL    122.95 + 0.75