Coffee Market Report March 15 2019

Rainfall reports from Brazil have seen most of the main coffee districts having received fair rains, but with dry weather for the northern districts in Espirito Santo and south Bahia, which have been relatively dry for most of this year.  Most farms within these districts do though, take advantage of supplementary irrigation and with rain forecast for the coming weeks, there are no concerns being voiced over the prospects for the coming crop. 

There is talk of drought being voiced for the main coffee districts in the central highlands of Vietnam that are coming to the fore, but this is the dry season and with the rains season only due to start during April and thereon, to persist until early October and the start of the new crop harvest.   While most farms utilise wells and irrigate their crops and thus for the present, these reports are not proving to be supportive for market sentiment. 

In the meantime, and with farmers still holding stocks from their recent harvest, there is some degree of price resistance within the internal market in Vietnam.  A factor that is likely to pressure upwards the asking price differentials for new business, from the country’s exporters. 

The European Coffee Federation ECF have reported that the port warehouse stocks held within reporting warehouses in the ports in Belgium, Germany, France, Italy and Spain decreased by 167,833 bags or 1.46% during the month of January 2019, to register these stocks at the end of the month at 11,311,150 bags.   These stocks do not however include the unreported stocks from the industry on site inventory stocks, the transit bulk container stocks and stocks being held within non-reporting warehouses throughout Western and Eastern Europe. 

The combination of West and East Europe consuming approximately 1.1 million bags of coffee a week, one might guess that the additional stocks that were not included in the report, could contribute as much as 2.5 million bags to the reported stocks.  Thus, indicating that as at the end of August, the European coffee stocks might have been close to the equivalent of a relatively safe, twelve and half weeks of Western and Eastern European roasting demand.   

This European coffee stock report is ahead of the pending delivery of new crop coffees from Mexico, Central America and India, which are now coming to the consumer markets.   Thus, one might speculate and with still high volumes of Brazil coffees coming to the market, that this latest report can only add to the prevailing bearish sentiment within the coffee terminal markets. 

The Australian Government Bureau of Meteorology have reported warming surface temperatures in the Pacific Ocean and foresee a 50% chance for and new El Niño phenomenon to develop during the second and third quarters of this year, but the chances are that if it comes about that it might not be a severe El Niño.  

The U.S.A. Government Climate Prediction Centre has meanwhile forecast an 80% chance for an El Niño phenomenon to develop within the Pacific Ocean during the second quarter of this year, but only a 60% chance for this to continue well into the third quarter of the year.  But in terms of this being something of a dry weather climate threat to coffee production for the Pacific Rim producing countries, it has not yet become a factor in the minds of the presently bearish speculative and fund sectors of the coffee markets. 

The May to May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 29.56 usc/Lb., while this equates to 30.43% 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 1,045 bags yesterday; to register these stocks at 2,496,428 bags.  There was meanwhile, a larger in number 2,647 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 36,245 bags. 

The commodity markets were mixed in trade yesterday and with the overall macro commodity index taking something of a sideways track for the day.  The Oil, Sugar and Cocoa markets experienced a degree of buoyancy for the day, while the Coffee markets ended the day on a negative note.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.06% lower; to see this index registered at 404.42.   The day starts with the U.S. Dollar steady and trading at 1.324 to Sterling, at 1.132 to the Euro and with the US Dollar buying 3.842 Brazilian Real. 

The London market started the day yesterday trading around par, while the New York market started the day modestly south of par and with the London market soon moving to join the New York market south of par and with both markets maintaining this stance, into the early afternoon trade.   As the afternoon progressed the markets remained close to par and with the New York market taking a brief lift into positive territory, before both markets and with a marginally weaker Brazil Real having and influence, moved south and deeper into negative territory.  The New York market did however manage to bounce back from the lows and limit its losses, while the London market came under further pressure and headed towards a very soft close for the day. 

The London market ended the day on a very negative note and with 87.5% of the earlier losses of the day intact, while the New York market ended the day on a negative note and with 47.6% of the earlier losses of the day intact.  This close does little to inspire confidence and one cannot foresee much better than a near to steady stance being taken for early trade today, against the prices set yesterday, as follows: 

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

MAR   1475 – 25                                            MAR     93.95 – 0.50

MAY   1490 – 28                                            MAY     97.15 – 0.50

JUL    1501 – 27                                            JUL       99.80 – 0.55

SEP    1518 – 26                                            SEP    102.45 – 0.60

NOV   1534 – 26                                            DEC    106.30 – 0.65

JAN    1550 – 26                                            MAR   110.10 – 0.65

MAR   1570 – 25                                            MAY   112.50 – 0.70

MAY   1590 – 25                                            JUL    114.75 – 0.65

JUL    1610 – 24                                            SEP    116.90 – 0.65

SEP    1629 – 24                                            DEC   120.05 – 0.65