Coffee Market Report August 28 2018

The New York market following last week’s dip in value to an over twelve year low has managed to recover by 4.85 usc/Lb. or 4.81% in value for the second delivery month, along with the general upturn in the overall macro commodity index, but the reference prices of this market remain dismal for the arabica coffee farmers globally.   Particularly so for the fine washed arabica coffee farmers who by nature of having to harvest their trees from four to six times per harvest season so as to select ripe cherries, the cost of the harvest well exceeds that of the one to two picks that is the case with the natural process arabica coffees. 

Thus, the relief of the New York market bouncing off the lows of last week, is still far away from being a matter of financial security for many of the arabica coffee farmers globally and with pressure upon many coffee producer governments to come to the fore with financial support.   This being a particular problem for the main stream fine washed arabica coffee producers, ahead of the new main crop in Colombia and the new crop harvest in Mexico and Central America that starts to impact during the last quarter of this year. 

The question is when shall the fundamentals of the coffee market finally encourage the speculative and fund sectors of the market to start to aggressively look to short covering buying activity, which shall be necessary for the New York market to post a significant recovery.   One might speculate that should there be no climatic issues coming to the fore for the main coffee producer bloc’s this year, that this might only be during the first quarter of the coming year.  By when one might anticipate forecasts for a biennially bearing lower new 2019 Brazil crop and input starved lower crops for other major producers shall start to impact upon market sentiment, which would be too late for many farmers to escape from having to accept loss making prices for much of their new crop coffee stocks. 

With the combination of large coffee and cotton crops in Brazil and with these commodities being related to container shipments rather than bulk shipments that are the method of export for the countries grain and sugar crops, there are container shortages and delays being experienced by the Brazilian coffee exporters.   However, with the consumer markets reasonably well stocked at present albeit not necessarily so with Brazil coffees and with the mainstream markets still to come out of the slower summer roasting season, this has not yet had a severe effect upon consumer market coffee supply. 

The November 2018 to December 2018 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 35.85 usc/Lb., while this equates to 33.9% 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 27,664 bags yesterday; to register these stocks at 2,195,449 bags.  There were meanwhile a larger in number 42,325 bags decrease in the number of bags pending grading for this exchange; to register these pending grading stocks at 141,865 bags. 

The commodity markets with the UK taking a bank holiday yesterday, lacked participation by all of the markets and encountered a softer U.S. dollar, to see the overall macro commodity index taking a follow through upside track for the day.  The Oil, Sugar, New York arabica Coffee, Cotton, Copper and Gold markets ended the day on a positive note, while the Cocoa market ended the day on a softer note.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.62% higher; to see this index registered at 403.57.  The day starts with the U.S. Dollar steady and trading at 1.287 to Sterling, at 1.166 to the Euro and with the dollar buying 4.078 Brazilian Real, while North Sea Oil is steady and is selling at US$ 74.40 per barrel. 

The London market was closed yesterday to leave a late starting New York to trade solo for the day and with this market opening the day, with immediate follow through buoyancy.  The market and with support from a slightly firmer Brazil Real, evidence of the significant speculative short sold status of the market and the buoyancy for the overall macro commodity index, assisted towards some speculative short covering and industry buying, which saw the market post gains of 2.90 usc/Lb.   This did though attract selling activity and the market hit a ceiling and dipped back in late trade, to end the day with only 36.2% of the earlier gains of the day intact. 

The positive nature of the New York close and the short-sold status of the market might assist to inspire some degree cautious confidence and contribute towards some catch up support for the London market in early trade today and likewise, a steady start for the New York market.  Against the prices set in the London market on Friday and in New York market yesterday, as follows: 

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

SEP    1620 + 6                                               SEP    101.85 + 1.30

NOV   1541 + 10                                             DEC    105.75 + 1.05

JAN    1532 + 10                                             MAR   109.05 + 1.05

MAR   1540 + 8                                               MAY   111.35 + 1.00

MAY   1554 + 7                                                JUL    113.75 + 1.05

JUL    1570 + 7                                                SEP    116.10 + 1.10

SEP    1587 + 7                                                DEC   119.50 + 1.05

NOV   1601 + 7                                                MAR   122.85 + 1.05

JAN    1613 + 9                                                MAY   124.95 + 1.05

MAR   1627 + 11                                              JUL    126.80 + 1.05