Coffee Market Report December 14 2016

The latest reports have indicated that domestic coffee consumption within Brazil has increased by 3.4% this year, to see domestic consumption at 21.2 million bags per annum.   This number added to the combination of green coffee and value added soluble coffees calculated in terms of their green coffee equivalent of approximately 32 million bags per annum, would indicate dedicated Brazil coffee demand at in excess of 53 million bags per annum.   A number marginally lower than this year’s production at around 55 million bags, but possibly a little higher than the early forecasts for next year’s 2017 new crop.   

However, while medium to longer term Brazil coffee supply is looking to remain neutral through to the follow on 2018 crop, there are forecasts for growth in the coffee supply from Mexico and Central America, Colombia and Peru, to add to world coffee supply.   These improved crops likely to contribute to global coffee supply for this present October 2016 to September 2017 coffee year of something in the region of in excess of 155 million bags. 

This is however with forecasts for global coffee demand due to exceed 154 million bags in 2017, not a bearish crop number and it is perhaps only the consumer coffee stocks that are seen to exceed 24 million bags, that is a factor that is presently dampening market spirits.   But one might suggest that unless there is a good recovery for next year’s Indonesian coffee crop and likewise at the end of next year for the follow-on Vietnam crop, one might foresee little possibility for much of an increase in global coffee stocks.   A factor that would make the 2017 coffee markets very vulnerable to any unforeseen climatic issues for the main producer blocs, which with the unpredictable weather conditions that have prevailed of late, is perhaps a supportive factor for the markets at present.  

It has meanwhile been something of an erratic new crop harvest in Vietnam so far, with the rain delays to the start of this harvest since followed by erratic spells of wet weather, which has been interrupting the harvest.  While with these spells of wet weather often interrupting the harvesting of new crop coffees and likewise, the drying of the harvested coffees, there are concerns that there shall be higher percentages of low quality beans coming with this new crop.   A factor that shall not really change the perspective of a marginally smaller new crop of in excess of 25 million bags, but one that shall perhaps inflate the asking price differentials for the higher-grade robusta coffees coming to the fore from this new crop in the coming months.  Especially so, against the prevailing tighter supply of robusta coffee supply from Indonesia, which is due to remain until the new crop starts to impact in May next year. 

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 50.04 usc/Lb., while this equates to a 35.03% 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 7,815 bags yesterday; to register these stocks at 1,246,742 bags.  There was meanwhile a larger in number 11,375 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 36,481 bags. 

The Certified Robusta coffee stocks held against the London market were seen to increase by 3,000 bags or 0.13% over the week of trade leading up to Monday 12th. December, to register these stocks at 2,366,667 bags on the day. 

The commodity markets were mixed in trade yesterday and with many players now focused on today’s meeting of the U.S. Federal Reserve bank and the possibility of an interest rate hike, with the overall macro commodity index taking a steady track for the day.   The Oil, Cocoa, Coffee, Cotton, Wheat and Corn markets had a day of buoyancy, while the Natural Gas, Sugar, Copper, Orange Juice, Soybean, Gold and Silver markets tended softer for the day.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.09% lower; to see this Index registered at 424.6.   The day starts with the U.S. dollar steady and trading at 1.265 to Sterling and 1.064 to the Euro, while North Sea Oil is near to steady and selling at 52.85 per barrel. 

The London and New York markets started the day with early buoyancy and to take a positive track into the early afternoon trade and with the New York market triggering buy stops and to set off on something of a rally, but this was short lived and as the afternoon progressed the New York market came off the boil and while the London market maintained a positive sideways track, the New York market dipped back par and with some brief spells into modest negative territory, before recovering and taking a positive track for late trade.   The London market ended the day on a very positive note and with 90.6% of the earlier gains of the day intact, while the New York market ended the day on a modestly positive note and with only 42.5% of the earlier gains of the day intact.  This close and with the New York market having shown the ability to shrug off the negative pressure yesterday, is likely to assist to inspire a degree of confidence and one might expect to see a follow through steady start for early trade today, against the prices set yesterday, as follows:  

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

JAN      2053 + 23                                               DEC    138.90 + 0.85

MAR     2046 + 29                                               MAR   142.85 + 0.85

MAY     2053 + 29                                               MAY   145.10 + 0.85

JUL      2056 + 28                                               JUL     147.30 + 0.85

SEP      2058 + 27                                              SEP     149.20 + 0.80

NOV     2060 + 23                                               DEC    152.00 + 0.65

JAN      2064 + 23                                               MAR   154.65 + 0.60

MAR     2074 + 23                                               MAY   156.35 + 0.60

MAY     2090 + 23                                               JUL    157.95 + 0.55

JUL      2108 + 23                                               SEP    159.60 + 0.55