Coffee Market Report January 11 2019

The majority of the main arabica coffee districts in Brazil are reported to have been in receipt of average rains for the month so far and accompanied by nice sunny summer weather, which is conducive for the development of the new 2019 crop cherries.   The main conilon robusta districts in Espirito Santo and south of Bahia have though experienced mostly dry weather, but with most of the farms utilising supplementary irrigation, this is not of any concern. 

The Brazilian National Statistics Agency IBGE have come to the fore with a forecast that the due to biennial bearing factors that the countries 2019 arabica coffee crop shall be 14.9% lower than last year, at a more modest 38.2 million bags.  This they say shall contribute towards the overall 2019 Brazil coffee crop to be 10.8% lower than last years coffee crop, at a total of 53.4 million bags.   The IBGE is traditionally very conservative in terms of their figures and are usually considered to be between 5% and 10% below reality and therefore such a forecast, is unlikely to be very supportive for market sentiment. 

The Vietnam General Department of Customs have reported that the countries coffee exports for the month of December were 2,565,100 bags, which has contributed to the countries coffee exports for 2018 to have been 19.9% higher than the previous year, at a total of approximately 31.33 million bags.   They to however make the point that while there has been a dramatic rise in the volume of coffee exports during 2018, that due to the softer market prices through the year, that the income from these exports was only 1.1% higher than the previous year, at a total of 3.54 billion U.S. dollars.   

Meanwhile with the new crop coffee harvest in Vietnam coming to a close, a number of internal market traders are reported on Reuters to dispute the forecasts for a follow on bumper new coffee crop, but rather that the due to reduced income and reduced farm inputs that the new crop is 10% lower than the previous crop, at approximately 27 million bags.   This reduced crop forecast which is contrary to many other respected forecasts might though be seen to be somewhat market manipulative in nature and one might speculate, that is shall not contribute to a short-term change to the prevailing bearish market sentiment. 

The National Weather Service Climate Prediction Centre in the U.S.A. now only foresee a 65% chance for a noticeable El Niño phenomenon developing within the Pacific Ocean for the first quarter of this year and to continue, into the first half of the second quarter of this year.   While the Australian Government Bureau of Meteorology have reported that the conditions are presently neutral over the Pacific Ocean, following the developing El Niño conditions during the last quarter of last year.  These reports tending to reduce the risk factor for a damaging El Niño for the Pacific Rim coffee producers, which for the present, shall seemingly remove this weather risk factor in terms of coffee market sentiment. 

It is noted though that an El Niño is usually conducive to increased rains over South East Brazil and the main coffee districts of the country and thus the potential lack of this phenomenon this year, is going to see the trade keeping a closer eye upon the Brazil rainfall reports for the next three to four months.  Albeit for the present, there have been no threatening longer term weather forecasts forthcoming from Brazil. 

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 34.58 usc/Lb., while this equates to 33.17% 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 2,461 bags yesterday; to register these stocks at 2,465,531 bags.  There was meanwhile a larger in number 6,829 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 33,095 bags. 

The commodity markets had a mixed day yesterday, to see the overall macro commodity index taking a softer track for the day.   The Oil and Cocoa markets ended the day on a positive note and the Natural Gas and London robusta Coffee markets ended the day on a steady note, while the Sugar, New York arabica Coffee, Cotton, Copper, Orange Juice, Wheat, 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 0.5% lower; to see this index registered at 403.02.   The day starts with the U.S. Dollar showing some degree of early buoyancy and trading at 1.276 to Sterling, at 1.153 to the Euro and with the dollar buying 3.710 Brazilian Real. 

The London market and New York markets started the day on a softer note, but with both markets moving to trade around par for the early afternoon trade.   As the afternoon progressed the London market stayed mostly close to par, while the New York market and with some softening of the Brazil Real developing, moved back into negative territory. 

The London market ended the day on a steady note and with 14.2% of the earlier modest gains of the day intact, while the New York market ended the day on a negative note and with only 53.8% of the earlier losses of the day intact.  This close does little to indicate direction and one might expect to see only a hesitant slow and erratic near to steady start for early trade today, against the prices set yesterday, as follows: 

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

JAN    1515 + 1                                               MAR   104.25 – 1.05

MAR   1536 + 1                                               MAY   107.65 – 0.85

MAY   1557 + 3                                                JUL    110.60 – 0.80

JUL    1576 + 5                                                SEP    113.50 – 0.80

SEP    1593 + 5                                                DEC   117.35 – 0.85

NOV   1612 + 5                                                MAR   121.15 – 0.80

JAN    1630 + 4                                                MAY   123.55 – 0.80

MAR   1650 + 4                                                JUL    125.75 – 0.90

MAY   1670 + 3                                                SEP    127.85 – 1.00

JUL    1687 + 3                                                DEC    130.90 – 1.10