Coffee Market Report December 14 2018

The Brazilian Institute of Geography and Statistics IBGE have increased by 1.7% their assessment of this year’s new Brazil crop, now asses the crop at 59.6 million bags.   This they appropriate to 44.8 million bags of arabica coffees and to 14.8 million bags of conilon robusta coffees. 

The traditionally conservative IBGE has generally been seen to be approximately 10% below reality and if one is to apply this factor, it would indicate a new Brazil coffee crop this year of close to the 65 million bags that many other local and international trade and industry bodies have reported.  Thus, it is a report, which underpins the prevailing bearish sentiment within the market. 

The respected Brazil analysts Safras & Mercado have reported that as at the beginning of this week, that farmers had sold 64% of the new crop coffees, as opposed to a 66% factor at the same time last year.  But if one is to consider that this new crop is approximately 26% larger than the previous years crop, the volume of new crop sales this year in excess of 41 million bags, would be approximately 7.5 million bags higher than the same time last year.   As is evident by the large numbers of exports that have been recorded, over the past few months. 

It has been reported that internal market sales in Brazil have slowed of late, which is probably to be expected, with farmers having already sold and cashed in good volumes of coffee.   Making one speculate that with good sales in hand and the distraction of the festive season and the Brazil summer holidays on a nearby horizon, that internal market selling activity might remain slow into the start of the new year.   This might if the already short sold funds remain quiet and perhaps even look to do some short covering, assist for some degree of buoyancy for the New York market. 

Weather wise it is reported that Brazil has had a mostly dry week over the main south east of Brazil coffee regions, but with rains having been reported for the more northern regions of Zona da Mata, North Espirito Santo and Bahia.   The dry areas do however after the past couple of months of good rains, have good ground water retention levels, with spells of sunny dry weather being beneficial for the development of the new 2019 crop cherries. 

The new Vietnam harvest is perhaps as much as 70% complete, with stocks building but presently some degree of price resistance reported.   But it would seem there is no shortage of supply for the country’s exporters, in terms of their nearby forward sold export commitments. 

The National Weather Services Climate Prediction Centre CPC in the U.S.A. have reported that they now foresee a 90% chance for a new El Niño phenomenon to form in the Pacific Ocean and a 60% chance, for it to continue into the second quarter of next year.  But there is no indication of the potential intensity of the probable new El Niño and as if it proves to be only a mild occurrence, it is unlikely to be severely damaging to the coffee producers in the Pacific Rim countries.  While if it does occur, it would be favourable for increased rains in the new year for the coffee producing districts in south east Brazil. 

The March 2019 to March 2019 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 35.88 usc/Lb., while this equates to 34.47% 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 916 bags yesterday; to register these stocks at 2,448,662 bags.  There was meanwhile a larger in number 3,486 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 62,600 bags. 

The commodity markets had another mixed day yesterday, to see the overall macro commodity index taking a modest upside track for the day.   The Oil, Sugar, Cocoa, New York arabica Coffee, Orange Juice and Wheat markets ended the day on a positive note and the Natural Gas market ended the day on a near to steady note, while the London robusta Coffee, Cotton, Copper, Corn, Soybean, 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 0.33% higher; to see this index registered at 407.94.   The day starts with the U.S. Dollar steady and trading at 1.263 to Sterling, at 1.136 to the Euro and with the dollar buying 3.891 Brazilian Real. 

The London and New York markets started the day yesterday trading marginally above par, but with the New York market slipping back to trade marginally south of par and with the markets taking a mixed stance, into the early afternoon trade.   As the afternoon progressed the New York market extended its losses and the London market slipped back to trade marginally below par, but with the New York market recovering to trade in positive territory and the London market coming under pressure to fall into relatively deep negative territory.   

The London market ended the day on a very negative note and with 81.8% of the earlier losses of the day intact, while the New York market ended the day on a positive note and with 80.8% of the earlier gains of the day intact.   This close and with the New York market having managed to bounce back from the earlier 1.30 usc/Lb. losses of the day, might assist towards some degree of confidence and set the markets for a degree of buoyancy for the London market and a steady start for the New York market for early trade today.  Against the prices set yesterday, as follows: 

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

                                                                        DEC      98.80 + 1.05

JAN    1477 – 22                                             MAR   104.10 + 1.05

MAR   1504 – 18                                             MAY   107.20 + 1.10

MAY   1519 – 18                                              JUL    109.90 + 1.10

JUL    1536 – 16                                              SEP    112.60 + 1.10

SEP    1555 – 14                                              DEC   116.35 + 1.15

NOV   1573 – 13                                              MAR   119.95 + 1.10

JAN    1591 – 12                                              MAY   122.40 + 1.10

MAR   1605 – 13                                              JUL    124.75 + 1.05

MAY   1626 – 13                                              SEP    127.00 + 1.00

JUL    1638 – 13                                              DEC    129.90 + 0.90