Coffee Market Report December 09 2016

The latest report from the U.S. Government weather forecaster’s Climate Prediction Centre forecasts that the prevailing mild La Niña within the Pacific Ocean is likely to soon start to dissipate, which shall see conditions shall start to become normal during the first quarter of the coming year.   Thus, there would appear to be no threat of damaging excessive rains due for the Pacific Rim coffee producing countries for the foreseeable future, which would indicate that there would likewise be no threat to longer term overall global coffee supply. 

Albeit that for at least the first half of the coming year and following the latest forecasts for a modest new Vietnam robusta coffee crop and the lack of contribution to the consumer markets of Brazil conilon robusta coffees for the same period, one can still anticipate that there shall be some degree of tightness in robusta coffee supply for the period.    A factor that shall see increased demand for the lower grades of arabica coffees as robusta replacement, to somewhat eliminate the potential for the negative influences that might come with surplus coffee supply. 

Within the traditional fine washed arabica coffee producer bloc of Central America there are already small volumes of robusta coffee being produced, in Mexico, Guatemala and Nicaragua.   These volumes are however due to start to increase in the coming years, with the news that the Nicaraguan authorities have passed a resolution to expand the areas within the country that will be available for robusta coffee farming.   This new law shall allow for robusta coffee farming within most areas within the country that are below 400 meters in altitude, but with a stipulation that such plantings must be a minimum of 30 Kilometres away from any of the higher grown arabica coffee farms.  

Costa Rica presently has legislation in place that does not allow for the farming of robusta coffees, but one might suggest that if in the coming five to six years there is evidence of profitable robusta coffee production in Nicaragua, that it might start to inspire the neighbouring countries.  This would include Colombia, where there is talk of robusta coffee farming to support the countries soluble coffee industry in both the low altitude coastal areas and the previously FARC controlled low altitude areas within the interior of the country.  

The leading West African robusta coffee producer the Ivory Coast has reported that the countries coffee exports for the first ten months of this year were 32% higher than the same period last year, at a total of 1,114,617 bags.   One would think thought that this improved performance is not really related to a larger new crop early this year, but I more related to the improved prices for robusta coffees this year that have encouraged more selling aggression. 

The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 50.18 usc/Lb., while this equates to a 35.49% price discount for the London robusta coffee market.  This narrowing arbitrage is now becoming less of an attractive factor for the roasters who have considered robusta coffees to be an opportunist discount component, within their mostly arabica coffee blends. 

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 1,325 bags yesterday; to register these stocks at 1,264,049 bags.  There was meanwhile a larger in number 3,935 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 16,503 bags. 

The commodity markets were mixed in trade yesterday, with the overall macro commodity index taking something of a sideways track for the day.    The Oil, Natural Gas, Wheat, Corn and Soybean markets showed some degree of buoyancy and the Cotton market was steady, while the Sugar, Cotton, Coffee, Copper, Orange Juice, Gold and Silver markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.14% lower; to see this Index registered at 424.27.   The day starts with the U.S. dollar steady and trading at 1.259 to Sterling and 1.061 to the Euro, while North Sea Oil is tending steady and is selling at 52.35 per barrel. 

The London market and New York markets started the day yesterday taking a soft stance but with both markets attracting support and moving up into constructive positive territory.  This was however not sustained and both markets moved south and once again taking on a negative stance and with the London market remaining softer in nature, but with speculative support assisting for something of a late partial recovery for the New York market.   The London market ended the day on a soft note and with 62.5% of the earlier losses of the day intact, while the New York market ended the day on a modestly softer note and having recovered 71.4% of the earlier losses of the day by the close.    This close does little to inspire but one might think that the ability of the more volatile New York market to bounce back from the lows yesterday might assist towards a hesitantly steady start for early trade today against the prices set yesterday, as follows: 

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

JAN      2015 – 15                                               DEC   137.60 – 0.30

MAR     2011 – 10                                               MAR   141.40 – 0.30

MAY     2019 – 12                                               MAY   143.75 – 0.30

JUL      2025 – 13                                               JUL    145.95 – 0.25

SEP      2029 – 15                                              SEP    148.00 – 0.25

NOV     2034 – 16                                               DEC    150.90 – 0.30

JAN      2038 – 18                                               MAR   153.60 – 0.20

MAR     2048 – 18                                               MAY   155.15 – 0.25

MAY     2064 – 18                                               JUL    156.60 – 0.25

JUL      2082 – 18                                               SEP    157.80 – 0.30