Coffee Market Report February 22 2019

The February rains over the main coffee districts in Brazil are reported to be fair to good for most districts, with more rains forecast for the rest of the month.   These rains and with their contributing towards the perception that Brazil shall have a smaller but overall good crop, continuing to dampen speculative spirits within the coffee markets. 

The forecasts for the new arabica coffee crop from Brazil this year tend to indicate a new crop that shall be as much as 10 million bags lower than last years bumper crop, but with the new conilon robusta coffee crop forecast to be approximately 2 million bags higher than last years likewise, bumper crop.   This indicating something in the order of an eight million bags dip in Brazil coffee production this year, but with the probability of significant volumes of carryover arabica coffee stocks into the start of the new crop harvest. 

If this proves to be the case and if one is to assume that due to low prices and reduced inputs by many farmers in Central America and a possibility for an approximate dip in Mexican and Central American production of as much as 1.5 million bags for the coming 2019/2020 harvest, one is already looking at a ten million bags dip in global coffee production to fuel the coming October 2019 to September 2020 coffee year.   In the meantime, with the general perception that global coffee consumption is increasing by approximately 2.5 million bags per annum, it would without addressing the other producer blocs, indicate a 12 million bags dip in global coffee supply for the coming October 2019 to September 2020 coffee year. 

The possible shortfall in global coffee supply of approximately 6 to 7 million bags for the coming October 2019 to September 2020 coffee year would however be countered by the prospects for significant volumes of carryover stocks of coffee and is unlikely to impact upon supply for the coming year, but unless there is a significant growth in coffee production in 2020, could well result in significant deficit global coffee supply developing by 2021. 

But for the present the speculative and fund sectors of the market remain significantly short sold and are depressing coffee prices and with the prospects that once there is a clearer picture in terms of coffee production and supply for 2020, that their short covering buying activity shall result in a significant rally within the coffee markets.  At a guess, this scenario could occur post the northern hemisphere summer holiday season, to move the markets into a much more positive price trading range into the last quarter of this year. 

Meanwhile with the soft prices that are being traded within the coffee terminal markets, there remains a degree of internal market price resistance within most of the producer countries.  This is tending to inflate the asking price differentials relative to the values of the coffee terminal markets, for both arabica and robusta coffees.   

The May to May contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 29.91 usc/Lb., while this equates to 30.08% price discount for the London Robusta coffee market.   

The Certified washed Arabica coffee stocks held against the New York exchange registered no change yesterday; to register these stocks at 2,487,102 bags.  There was meanwhile, a 4,560 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 26,253 bags. 

The commodity markets were mixed in trade yesterday, to see the overall macro commodity index taking something of a sideways track for the day.   The Gas, Cotton, Orange Juice, Wheat, Corn and Soybeans markets ended the day on a positive note, while the Oil, Sugar, Cocoa, Coffee, Copper, 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 0.13% higher; to see this index registered at 405.03.   The day starts with the U.S. Dollar steady and trading at 1.303 to Sterling, at 1.134 to the Euro and with the US Dollar buying 3.768 Brazilian Real. 

The London market started the day yesterday on a near to steady note and trading close to par, while the New York market started the day on modestly negative note, with the markets maintaining this stance into the early afternoon trade.  As the afternoon progressed and with a weaker Brazil Real coming into play, the New York market came under further pressure and triggering sell stops, to fall deeper into negative territory and with the London market following suit in a more sedate manner.  The markets continued to wallow in negative territory for the rest of the day, as they headed towards a soft close for the day. 

The London market ended the day on a negative note and with 73.3% of the earlier losses of the day intact, while the New York market ended the day on a very negative note and with 83% of the earlier losses of the day intact.  These soft close does little to inspire confidence and with the Brazil Real remaining weaker against the U.S. Dollar and indicating the possibility of increased selling activity out of this well stocked producer, it adds to negative speculative sentiment.  But following the later in the day collapse in the markets and the thoughts that they might be somewhat oversold, it could well contribute towards a degree of buoyancy for early trade today, against the prices set yesterday, as follows: 

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

MAR   1505 – 12                                            MAR    96.10 – 1.45

MAY   1533 – 11                                            MAY     99.45 – 1.95

JUL    1545 – 11                                             JUL   102.15 – 2.00

SEP    1561 – 11                                            SEP   104.90 – 2.00

NOV   1577 – 11                                            DEC   108.70 – 2.05

JAN    1594 – 11                                           MAR   112.45 – 2.00

MAR   1613 – 10                                           MAY   114.85 – 2.00

MAY   1632 – 10                                            JUL    117.10 – 2.00

JUL    1648 – 10                                            SEP    119.25 – 2.00

SEP    1665 – 10                                            DEC   122.40 – 2.00