Coffee Market Report February 20 2019

The delayed Commitment of Traders report from the New York arabica coffee market has seen the Non-Commercial Speculative sector of this market increase their net short sold position within the market by 0.74% over the week of trade leading up to Tuesday 29th. January; to register a new net short sold position of 62,109 Lots.   This net short-sold position which is the equivalent of 17,607,626 bags has most likely been increased again, following the mixed but overall softer trade which has since followed.

 Following below average rains for many of the main coffee districts in Brazil in January, there have been generally good rains reported for this month.    While with weather forecasts so far seeing no problems in terms of rains for the coming month of March, the prospects for a smaller but nevertheless still good-sized new coffee crop due later this year and accompanied by the probability of significant carryover arabica coffee stocks, continues to impact negatively upon speculative market sentiment.  

The coffee markets meanwhile remain devoid of any supportive fundamental news and the speculative and fund sectors of the volatile New York market remain significantly short sold into the market, which offers what most would see to be unrealistic prices, compared to the cost of production for most of the washed arabica coffee producers.  This impacting very negatively upon the prices coming to the fore for the majority of the Mexican and Central America coffee farmers, who are presently marketing their new crop coffees.  A factor that shall make it difficult for many farmers to finance the full range of inputs that shall be necessary, to ensure good yields for the follow-on crop that is due to be harvested from October 2019 to March 2020. 

One might speculate that the relatively dismal sales prices coming to many farmers in Mexico and Central America this year and its impact upon famers ability to finance their inputs, might result in excess of a 2 million bags dip in production for the next crop and the fine washed arabica coffee supply for the next October 2019 to September 2020 coffee year.  Which with steadily growing global coffee consumption, shall assist to buoy sentiment and possibly bring to the fore speculative and fund short covering for the second half of this year and some degree of recovery for the New York market later this year. 

The May to May contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 31.09 usc/Lb., while this equates to 30.83% price discount for the London Robusta coffee market.   

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 250 bags yesterday; to register these stocks at 2,481,862 bags.  There was meanwhile a larger in number 7,194 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 29,649 bags. 

Many commodity markets were mixed in trade yesterday but with the U.S. dollar tending softer through the day and assisting many markets to show some buoyancy, the overall macro commodity index took a steady to modestly upside track for the day.   The U.S. Oil, Natural Gas, Sugar, Cocoa, Cotton, Copper, Orange Juice, Gold and Silver markets ended the day on a positive note, while the Brent Oil, Coffee, Wheat and Corn markets ended the day on a softer note.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.3% higher; to see this index registered at 403.15.   The day starts with the U.S. Dollar steady and trading at 1.305 to Sterling, at 1.134 to the Euro and with the US Dollar buying 3.724 Brazilian Real. 

The London and New York markets started the day yesterday trading hesitantly around par, but with the markets soon coming under pressure and taking a modest negative stance into the early afternoon trade.  As the afternoon progressed the New York market came under further pressure and with the May contract getting close to a double-digit value, before bouncing off the lows and taking on a more modest negative stance, while the London market maintained its negative stance through to a soft close. 

The London market ended the day on a very negative note and with 89.5% of the earlier losses of the day intact, while the New York market ended the day on a negative note but having recovered 51.5% of the earlier losses of the day.  This close does not assist to paint a positive picture for the charts, but perhaps the combination of evidence of the significant short sold status of the New York market and its ability to bounce back from the lows yesterday, shall influence a degree of caution.  To assist the markets be set for another hesitant steady start for early trade today, against the prices set yesterday, as follows: 

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

MAR   1513 – 16                                            MAR    97.20 – 0.75

MAY   1538 – 17                                            MAY   100.85 – 0.80

JUL    1550 – 14                                             JUL   103.55 – 0.75

SEP    1567 – 13                                            SEP   106.30 – 0.70

NOV   1585 – 13                                            DEC   110.10 – 0.70

JAN    1602 – 13                                           MAR   113.90 – 0.65

MAR   1620 – 13                                           MAY   116.35 – 0.65

MAY   1639 – 13                                            JUL    118.60 – 0.65

JUL    1655 – 13                                            SEP    120.80 – 0.60

SEP    1672 – 13                                            DEC   124.00 – 0.55