Coffee Market Report October 18 2018

The steadily strengthening Brazil Real has continued to inspire sentiment within the New York market, with good volumes of speculative short covering coming to the fore.  This resulting in the market ticking a four-month high in trade yesterday, with the managed money funds and speculative sectors of the market most likely to have significantly reduced their short-sold positions within this volatile market.   

One might comment though that while the firmer Brazil Real might result in internal market price resistance within Brazil, the rising value of the reference prices of the New York market is assisting to allow for exporters to pay up and offer similar prices that were previously considered acceptable to the arabica coffee farmers.  Thus, suggesting that the firmer Real might not slow the volumes of Brazil sales and exports. 

Meanwhile soon to be hanging over the New York market in the coming months and aside from Brazil, shall be large volumes of new main crop Colombian coffees and along with the new Mexican and Central American coffee crops.   These coffees unless the speculative funds find reason not to remain short within this market, most likely to increase the volumes of price fixation hedge selling and to create something of a price ceiling for the market. 

With a large middle class within China and many of whom are turning towards western culture, there is a steadily growing coffee market within the country.   As there is a steadily increasing coffee farming community, within the South East of the country and with coffee production rising towards 2 million bags per annum.  This is being highlighted by the forthcoming 2018 Asian Coffee Annual Conference that is scheduled to take place over the 11th. and 12th. November, in Mangshi City, Yunnan Province. 

The January 2019 to December 2018 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 41.99 usc/Lb., while this equates to 34.26% 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 2,280 bags yesterday; to register these stocks at 2,425,284 bags.  There were meanwhile a larger in number 4,221 bags decrease in the number of bags pending grading for this exchange; to register these pending grading stocks at 52,629 bags. 

The commodity markets experienced a mixed day yesterday, but with many markets softening, to see the overall macro commodity index tending softer for the day.   The Natural Gas, Sugar, Cocoa, Coffee and Soybean markets ended the day on a positive note, while the Oil, Cotton Copper, Wheat, Corn, Gold and Silver markets ended the day on a softer note.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.03% lower; to see this index registered at 420.76.   The day starts with the U.S. Dollar showing a degree of buoyancy and trading at 1.309 to Sterling, at 1.149 to the Euro and with the dollar buying 3.687 Brazilian Real, while North Sea Oil is tending softer and is selling at US$ 80.00 per barrel. 

The London and New York markets both started the day yesterday on a negative note, but this was short lived for the New York market that soon started to attract support and to move up into modest positive territory and to see the markets taking a mixed stance, into the early afternoon trade.   As the afternoon progressed the New York market started to attract more support and with high volumes of buy stops being triggered to add unexpected significant value to the market, which was followed by a recovery into positive territory for the London market.    Both markets managing to retain most of the gains of the day by the close, with gains within the New York market being particularly impressive. 

The London market ended the day on a positive note and with 80.8% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 93.3% of the earlier gains of the day intact.   This positive close that comes despite negative fundamentals and a robust U.S. Dollar, assists to paint a positive picture for the charts and is constructive for the market.  But with many confused by the somewhat unexpected rally within the markets, one might expect to see the markets set for a cautious and hesitant start for early trade today, against the prices set yesterday, as follows: 

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

NOV   1755 + 11                                             DEC    122.55 + 4.90

JAN    1776 + 21                                             MAR   126.25 + 4.95

MAR   1789 + 20                                             MAY   128.70 + 5.00

MAY   1804 + 21                                              JUL    131.30 + 4.95

JUL    1818 + 21                                              SEP    133.30 + 4.95

SEP    1833 + 20                                              DEC   136.60 + 4.95

NOV   1846 + 21                                              MAR   139.85 + 4.95

JAN    1858 + 21                                              MAY   141.80 + 4.90

MAR   1872 + 21                                              JUL    143.45 + 4.85

MAY   1884 + 21                                              SEP    145.05 + 4.80