Coffee Market Report October 19 2018

The reports from Brail indicate that the main arabica coffee districts in South East Brazil have been in receipt of good rains over the recent days and while it is likely to remain mostly dry for the next few days, that more rains are due for the latter half of next week.   This has assisted to raise the ground water retention levels and to assist with the setting of the flowers for the next 2019 crop which albeit likely to suffer a little from biennial bearing factors, is looking to be a good crop.  

It is however still early days and with the Brazil coffee farms requiring regular and good rains through to March next year, in order to support a good 2019 crop.  But so far there have been no long-range weather forecasts that indicate anything other than normal weather conditions for South East Brazil, which with fair weather over all the main coffee producing countries, presently indicates that global coffee supply shall remain in surplus for quite some time to come. 

Meanwhile with the polls favouring the right wing and economic friendly Jair Bolsonaro to win the Brazil presidential runoff election on the 27th. of this month, the Brazil Real is remaining firm.   However, with the reference prices of the international coffee terminal markets having firmed, it is reported that there remains active internal market trade of new crop coffees. 

 It is reported that the rain season in Vietnam is now tailing off and thus triggering more active new crop coffee harvesting activity, which is likely to start peaking in five to seven weeks’ time.  Albeit that the weather forecasts are for occasional showers and thunder showers, which shall from time to time, interrupt the harvest activity.   But with another large crop forecast, there is likely to be good volumes of new crop and mostly robusta coffees starting to flow into Ho Chi Minh City, by early December. 

The January 2019 to December 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 41.54 usc/Lb., while this equates to 34.04% price discount for the London Robusta coffee market.   

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 941 bags yesterday; to register these stocks at 2,424,343 bags.  There were meanwhile a larger in number 15,240 bags increase in the number of bags pending grading for this exchange; to register these pending grading stocks at 67,869 bags. 

The commodity markets experienced something of a down day yesterday and with many markets coming under pressure, to see the overall macro commodity index taking a softer track for the day.   The Sugar, Cotton and Gold markets nevertheless ended the day on a positive note and the London robusta Coffee and Orange Juice markets on a relatively steady note, while the Oil, Natural Gas, Cocoa, Copper, Wheat, Corn, Soybean 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 1.07% lower; to see this index registered at 416.25.   The day starts with the U.S. Dollar steady and trading at 1.302 to Sterling, at 1.146 to the Euro and with the dollar buying 3.721 Brazilian Real, while North Sea Oil is showing some degree of early buoyancy and is selling at US$ 80.15 per barrel. 

The London and New York markets both started the day yesterday trading around par, but with both markets attracting support and moving into modest positive territory and with the New York market adding additional value, before both markets faltered and entered the early afternoon trade with prices close to par.   As the afternoon progressed the market took an erratic track and even a short sharp dip into negative territory with both markets mostly trading either side of par and on a somewhat sideways track, with the New York market particularly erratic in nature and heading towards a modestly softer end for the day. 

The London market ended the day on a near to steady note and having recovered 95.8% of the earlier losses of the day, while the New York market ended the day on a negative note, but having recovered 71.4% of the earlier losses of the day.    This close with both markets looking a little toppy for the day, provides little indication of direction   This makes one speculate that the inability for the markets to sustain their recent rally and with the oversupply coffee fundamentals clearly evident and with the funds having already done good volumes of short covering buying, that the chances are that producer price fixation selling shall play a part and set the markets for little better than a near to steady start for early trade today.   Against the prices set yesterday, as follows: 

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

NOV   1756 + 1                                               DEC    122.05 – 0.50

JAN    1775 – 1                                               MAR   125.85 – 0.40

MAR   1789 unch                                            MAY   128.35 – 0.35

MAY   1803 – 1                                                JUL    130.70 – 0.35

JUL    1818 unch                                            SEP    132.95 – 0.35

SEP    1833 unch                                            DEC   136.25 – 0.35

NOV   1848 + 2                                                MAR   139.50 – 0.35

JAN    1861 + 3                                                MAY   141.50 – 0.30

MAR   1875 + 3                                                JUL    143.20 – 0.25

MAY   1887 + 3                                                SEP    144.80 – 0.25