Coffee Market Report November 23 2018

Most of the main coffee districts in Brazil have been in receipt of good rains so far this month and with the probability that the month shall end, with most districts having received above average rainfall.  Thus, following good rains in the previous month the prospects for the next 2019 coffee crop are looking good, with speculation that so long as there is normal rainfall for the next five months, that the country shall bring to the fore another large surplus crop in the coming year. 

It is of course early days and with weather conditions globally becoming unpredictable of late, there is always the possibility of damaging weather developing for the Brazil coffee farmers.  But with the only weather phenomenon seemingly on the horizon for the present being the over 70% possibility of a new El Niño and with this usually bringing with it increased rains for South East Brazil, it is unlikely that the Brazil coffee farmers shall suffer from damaging weather ahead of their next 2019 coffee crop. 

While the Centre for Advanced Studies on Applied Economics CEPEA in Brazil and in association with Luiz de Quiroz College of Agriculture and the University of São Paulo have forecast that there might be a modest dip in the size of the Brazil arabica coffee crop next year, due to the negative effects of biennial bearing for some farms.  But they have also forecast that the countries conilon robusta crop that was significantly higher in volume this year, is likely to be equally large and perhaps even larger, for the new 2019 crop. 

In the meantime, traders in Vietnam are estimating that over 40% of the new crop of mostly robusta coffees has been harvested, with the harvest due to peak in the coming couple of weeks and the harvest close to completion by the end of December.  While in terms of the volume of coffee that is due from this new crop, most of the forecasts vary between 29 million 31 million bags, which adds to the perspective for another bumper crop to add to the perspective for a significant global surplus coffee supply for the coming year.  

These reports and forecasts from the world’s two largest coffee producers who dominate the global supply of natural arabica and robusta coffee supply and with nothing in the way of voices of concern in terms of the new crops now starting to come from the large fine washed arabica producer bloc of Mexico, Central America and Colombia, under pin the prevailing bearish sentiment within the coffee markets.   Sentiment that is somewhat extended, by the forecasts for another bumper Brazil coffee crop possibly due to impact in eight months’ time. 

The March 2019 to March 2019 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 40.66 usc/Lb., while this equates to 35.64% price discount for the London Robusta coffee market.   

The Certified washed Arabica coffee stocks held against the New York exchange and with the market closed for the Thanksgiving holiday, were unchanged yesterday; to register these stocks at 2,455,443 bags.  There was likewise no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 24,986 bags. 

Many of the commodity markets were on holiday for the Thanksgiving Day public holiday in the U.S.A. yesterday, to make it difficult to calculate direction for overall macro commodity index.   But for the markets that were trading yesterday and with the U.S. dollar losing a little weight, there was an overall degree of buoyancy.  The Sugar, Cotton, Copper and Gold markets ended the day on a positive note, while the Oil and Cocoa markets ended the day on a negative note.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is without full participation unchanged from Wednesday’s close; to see this index registered at 410.39.   The day starts with the U.S. Dollar steady and trading at 1.287 to Sterling, at 1.141 to the Euro and with the dollar buying 3.803 Brazilian Real. 

The London market started the day trading solo and with value close to par, with the market maintaining a mostly sideways modestly negative track for the day.  To end the day with 50% of the losses of the day intact. 

This close does not inspire much confidence and with the New York market returning to the field of play today to encounter further bearish news out of Brazil, it is likely to set the markets for only a hesitant near to steady start for early trade today.  Against the prices set in New York on Wednesday and in London yesterday, as follows: 

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

NOV   1586 + 1                                               DEC    110.30 – 0.35

JAN    1610 – 5                                               MAR   114.10 – 0.80

MAR   1619 – 4                                               MAY   116.95 – 0.80

MAY   1630 – 6                                                JUL    119.55 – 0.85

JUL    1641 – 7                                                SEP    122.15 – 0.85

SEP    1652 – 7                                                DEC   125.70 – 0.85

NOV   1664 – 7                                                MAR   129.25 – 0.85

JAN    1677 – 8                                                MAY   131.65 – 0.85

MAR   1691 – 8                                                JUL    133.95 – 0.85

MAY   1711 – 9                                                SEP    136.00 – 0.85