Coffee Market Report December 13 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market decrease their net long position within the market by 32.46% over the week of trade leading up to Tuesday 6th. December; to register a net long position of 29,089 Lots.   Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 5.07%, to register a net long position of 38,579 Lots on the day. 

Over the same week, the Non-Commercial Speculative sector of this market decreased their long position within the market by 41.47%, to register net long position of 23,857 Lots.   This net long position which is the equivalent of 6,763,354 bags is most likely to be little changed to perhaps being marginally lower, following the period of softer trade that has since followed but corrected in yesterday’s rally and likewise, that of the Managed Money fund sector of the market. 

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Non-Commercial sector of this market decrease their net long position within this market by 4.39% during the week of trade leading up to Tuesday 6th. December; to register a long position of 29,209 Lots.  This net long position which is the equivalent of 4,868,167 bags has most likely been marginally decreased, following the period of mixed but overall softer trade that has since followed. 

There has been a Reuters Poll on the size of the recently completed new Brazil coffee crop that is related to thirteen respondents and including trade, the official Brazil crop supply agency and the well-respected U.S. Department of Agriculture Foreign Agricultural Service, which has come forth with an average that indicates that this crop was 54.9 million bags.   However, if one is to remove the traditionally conservative official Brazil Crop Supply Agency number from this poll that has with a figure of 49.6 weighted the average south, one would come to an average for a new crop harvest of 55.04 million bags.  

The same Poll addressed the prospects for the next 2017 new crop and in light of the evidence of the weather conditions over the main coffee districts for the last quarter of this year, so far.   In this respect the majority of the respondents agreed that this crop would be a smaller crop, but with the degree of decline being seen individually as modest as 5% to as much as 20% lower than this year’s crop.    Albeit that there were a couple of respondents that perhaps quite realistically, said that it is really too early to assess the prospects of the next 2017 crop until such time as there is clarity that comes with the weather conditions during the first quarter of next year and the evidence of the quality of the developing new crop coffee cherries.  

Perhaps significant within this Poll was the average that it brought forth for the drought affected new conilon robusta crop, which was a very modest 10.1 million bags and a number that would indicate a close to 3 million bags deficit supply, in terms of the annual demand from the Brazil domestic market roasters to fulfil their domestic market and soluble export demand for these coffees.   This with negligible carryover stocks of conilon robusta coffees into the new crop, creating a strong demand for lower grade arabica coffees to supplement the shortage of conilon robusta coffees, through to at least May next year.  

While in terms of traditional Brazil domestic market coffee demand and consumer market demand for Brazil arabica coffees, the assessed new crop of approximately 55 million bags, would indicate that the surplus supply from this crop might only prove to be a very modest 2 million bags.   This with minimal carryover stocks into this new crop and should the next 2017 crop prove to be 2.75 million bags or 5% lower than this year’s crop, would underpin the fact that Brazil coffee supply would be at best matching demand through to the follow on 2018 crop.   Thus, making the unpredictable weather conditions for the last quarter of 2017 and the first quarter of 2018 very critical, as Brazil will need to bring to the fore a good 2018 crop in order to rebuild stocks and support longer term growing consumer market demand. 

The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 50.51 usc/Lb., while this equates to a 35.57% 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 decrease by 9,492 bags yesterday; to register these stocks at 1,254,557 bags.  There was meanwhile a smaller in number 6,750 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 25,106 bags. 

The commodity markets were mixed in trade yesterday, but with the robust Oil markets and the softening of the U.S. dollar that had some impact on a few of the markets, assisting to buoy the overall macro commodity index for the day.   The Oil, Sugar, Cocoa, Coffee, Cotton, Gold and Silver markets had a day of buoyancy, while the Natural Gas, Copper, Orange Juice, Wheat, Corn and Soybean markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.42% higher; to see this Index registered at 425.01.   The day starts with the U.S. dollar steady and trading at 1.267 to Sterling and 1.063 to the Euro, while North Sea Oil is a little bit off the boil and selling at 53.00 per barrel. 

The London market started the day yesterday on a close to steady note, while the New York market showed some modest buoyancy.  This remained the track into the early afternoon trade when the New York market took a brief dip back into modest negative trade, prior to both markets recovering and setting a positive upside track, which was accelerated in late trade for the New York market with the advent of buy stops being triggered.   The London market ended the day on a positive note and with 62.2% of the earlier gains of the day intact, while the New York market ended the day on an even more positive note and with 72.6% of the earlier gains of the day intact.   This close that is accompanied by the concerning 2017 Brazil crop news might be modestly constructive to market confidence and is likely to slow selling activity on the part of the producers, to perhaps encourage a degree of buoyancy for early trade today, against the prices set yesterday, as follows: 

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

JAN      2030 + 41                                               DEC    138.05 + 2.50

MAR     2017 + 28                                               MAR   142.00 + 2.65

MAY     2024 + 27                                               MAY   144.25 + 2.60

JUL      2028 + 25                                               JUL     146.45 + 2.55

SEP      2031 + 24                                              SEP     148.40 + 2.50

NOV     2037 + 25                                               DEC    151.35 + 2.55

JAN      2041 + 25                                               MAR   154.05 + 2.55

MAR     2051 + 25                                               MAY   155.75 + 2.60

MAY     2067 + 25                                               JUL    157.40 + 2.60

JUL      2085 + 25                                               SEP    159.05 + 2.60