Coffee Market Report February 27 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 11.86% over the week of trade leading up to Tuesday 12th. February; to register a new net short sold position of 61,785 Lots.   This net short-sold position which is the equivalent of 17,515,774 bags has most likely been increased again, following the mixed but overall softer trade which has since followed.

 The Buon Ma Thuot Coffee Association have reported that the new crop coffee supply from the Dak Lak province in Vietnam shall be 2.38% lower than the previous October 2017 to January 2018 bumper crop, but still providing a good coffee supply.   Albeit that presently in reaction to the soft international market prices for coffee, there is price resistance being shown by many farmers and contributing to somewhat lacklustre internal market coffee trade.  Which is a factor that is assisting to buoy the asking price differentials for new business, on the part of the country’s exporters. 

The National Coffee Federation in Colombia have commented that due to the soft nature of the reference prices of the New York arabica coffee market and their effect upon internal market prices in Colombia, that many farmers are being obliged to sell coffee at in excess of 9% below cost of production.  They comment that this is unsustainable and that with a significant market share of global fine washed arabica coffee supply, that the country must address the possibility of finding a way to shed the influences of the futures markets and to look to fix Colombian coffee prices at profitable levels for the farmers. 

One might comment that this proposal is very much wishful thinking, as producer price fixation in commodities has always proved to be unstainable and while there might be some consumer market roasters who market the Colombian coffee brand and pay up for the coffee, most of the market would turn to alternatives.   Especially so at times of global coffee surplus supply and would only leave the price fixation producer holding unsold stocks and with the question, who would pay the farmers for the unsold coffees. 

It is though a real problem at present in terms of the higher cost washed arabica coffee producers in general, whose costs have been steadily rising year by year, while they are now having to try to sell new crop coffees against very soft reference prices of the New York market.    A factor that shall most certainly have some impact upon the levels of farm inputs towards the future crops and with global coffee consumption steadily rising, the prospects for this along with a smaller new Brazil natural arabica coffee this year, contributing towards an overall deficit global coffee supply developing for the coming October 2019 to September 2020 coffee year. 

The May to May contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 29.54 usc/Lb., while this equates to 29.58% 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 2,327 bags yesterday; to register these stocks at 2,483,020 bags.  There was meanwhile, a larger in number 10.230 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 27,803 bags. 

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 10,333 bags or 0.51% over the week of trade leading up to Monday 25th. February, to see these stocks registered at 1,995,833 bags, on the day. 

The commodity markets were mixed in trade yesterday, to see the overall macro commodity index taking something of a near to steady sideways track for the day.   The Oil, Natural Gas, Cocoa, Copper, Gold and Silver markets ended the day on a positive note, while the Sugar, Coffee, Cotton, Orange Juice, Wheat, Corn and Soybean markets ended the day on a softer note.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.32% lower; to see this index registered at 402.32.   The day starts with the U.S. Dollar steady and trading at 1.324 to Sterling, at 1.137 to the Euro and with the US Dollar buying 3.749 Brazilian Real. 

The London market started the day yesterday trading close to par and the New York market taking a modestly softer stance and soon joined by the London market moving into negative territory and to see both markets taking a negative stance, into the early afternoon trade.   As the afternoon progressed the London market initially showed some resistance to mover further south, but with the New York market coming under pressure and with sell stops coming into play to extend its losses, the London market soon faltered and moved back into more significant negative territory.  Setting both markets on track towards a soft close for the day.   

The London market ended the day on a negative note and with 75% of the earlier losses of the day intact, while the New York market ended the day on a very negative note and with 87.1% of the earlier losses of the day intact.  This close and with the New York market having this week broken through wat has been something of a 100 usc/Lb. support factor and having posted 11% losses for the month, does not assist to inspire confidence.   But there is the question with the delay in the commitment of trader’s report for the New York market that shall only catch up by the end of next week, as to what now is the net short sold position of the speculative and fund sectors of the market.  Most would guess that following the past couple of weeks of negative trade, that it is significant and might be a factor that shall inspire caution and set the markets for a steady start for early trade today, against the soft prices set yesterday, as follows: 

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

MAR   1522 – 9                                              MAR     93.55 – 2.85

MAY   1538 – 12                                            MAY     96.80 – 3.05

JUL    1545 – 15                                             JUL     99.60 – 3.00

SEP    1556 – 18                                            SEP   102.40 – 2.95

NOV   1571 – 19                                            DEC    106.30 – 2.85

JAN    1587 – 20                                            MAR   110.05 – 2.85

MAR   1607 – 19                                            MAY   112.50 – 2.75

MAY   1627 – 19                                            JUL    114.80 – 2.65

JUL    1644 – 19                                            SEP    117.00 – 2.55

SEP    1661 – 19                                            DEC   120.20 – 2.45