Coffee Market Report March 26 2019

The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market decrease their net short sold position within the market by 1.27% over the week of trade leading up to Tuesday 19th. March; to register a new net short sold position of 77,190 Lots.  Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 3.02%, to register a net long position of 34,092 Lots on the day. 

Over the same week, the Non-Commercial Speculative sector of this market decreased their net short sold position within this market by 4.66%; to register a new net short sold position of 74,939 Lots. This net short-sold position which is the equivalent of 21,244,874 bags has most likely been increased again, following the period of overall negative trade that has since followed and likewise, that of the Managed Money Fund sector of the market. 

The rains over the Brazil coffee districts continue to support forecasts on average for an overall 9% smaller but nevertheless fair-sized new crop due from Brazil this year, which indicate on average for a new crop of something close to 56.2 million bags due and with some looking a little bit higher and as much as 60 million bags.   The consensus is though that this new crop is due to remain substantial due to the forecast on average for an approximate 13% increase in conilon robusta coffee production, as against forecasts on average for an approximate 16% dip in arabica coffee production. 

These new crop arabica coffees are most likely to be supplemented by a reasonable volume of carry over arabica coffee stocks, from last year’s bumper arabica coffee crop.  Thus, for the present, it would seem that there shall be no shortage of Brazil arabica coffees available for the consumer market buyers.   While the prospects for a reasonable in size new Brazil crop coming in on top of surplus global coffee supply for the present October 2018 to September 2019 coffee year, continues to fuel negative speculative sentiment.   A factor that has seen the reference prices of the coffee terminal markets collapse and is proving to be painful for the majority of coffee producers and especially so, for the relatively expensive to produce fine washed arabica coffee farmers. 

This situation has seen the Colombian government allocating the equivalent of 19.4 million U.S. dollars towards assistance for their coffee farmers, but this might be seen to be miniscule in terms of the country’s annual coffee production of approximately 14 million bags.  A sum of money that equates to only 1.38 dollars per bag of coffee, which does little to counter the decline in the reference prices of the New York market, albeit that this is in addition to the equivalent of 30 million U.S. dollars granted for coffee farm aid last year, which would equate to a still very modest total of 3.52 dollars per bag in government assistance. 

With these Government subsides proving to be modest relative to the market decline, the Colombian Coffee Federation has recently coming to the fore with the thoughts that they should be setting minimum prices for their coffee farmers, which would inflate the export prices for Colombian fine washed arabica coffees.  These thoughts while not having any detail as to how it might be financed in terms of the competitive nature of the consumer market buyers where many roasters would be unlikely to be willing to pay up for their Colombian coffees, is presently causing some degree of confusion within the internal market in Colombia. 

Making one speculate that these statements on the part of the Colombian Coffee Federation might start to retard delivery of coffees from some of the farms, as farmers wait to see if the improved prices might somehow become a reality.  A factor that could disrupt nearby shipments, on the part of the country’s short sold exporters. 

The May to May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 26.26 usc/Lb., while this equates to 27.86% 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 2,503,036 bags.  There was meanwhile, a larger in number 1,600 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 23,472 bags. 

The commodity markets were mixed in trade yesterday but with many markets showing a degree of buoyancy, to see the overall macro commodity index relatively steady for the day.  The Oil, Natural Gas, Cocoa, Coffee, Cotton, Copper, Wheat, Corn, Soybean, Gold and Silver markets ended the day on a positive note, while the Sugar and Orange Juice markets ended the day on a softer note.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.36% higher; to see this index registered at 411.69.   The day starts with the U.S. Dollar steady and trading at 1.318 to Sterling, at 1.131 to the Euro and with the US Dollar buying 3.855 Brazilian Real. 

The London and New York markets started the day yesterday trading marginally south of par and maintaining this stance, into the early afternoon trade.  As the afternoon progressed both markets came under pressure and particularly so the London market, to see the markets moving deeper into negative territory.   But the markets and with the Brazil Real adding some value soon bounced off the lows and with produce selling pressure muted, to move back towards par and finally through par and into modest positive territory. 

The London market ended the day on a modestly positive note and with 45.5% of the modest gains of the day intact, while the New York market ended the day on a likewise modestly positive note and with 36.8% of the earlier gains of the day intact.  This close provides little in the way of direction and one might expect to see only a hesitant steady start due for early trade today, against the prices set yesterday, as follows: 

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

MAR   1480 unch

MAY   1499 + 5                                              MAY     94.25 + 0.35

JUL    1503 + 3                                              JUL      96.90 + 0.25

SEP    1516 + 4                                              SEP      99.70 + 0.30

NOV   1532 + 4                                              DEC    103.55 + 0.30

JAN    1550 + 5                                              MAR   107.35 + 0.25

MAR   1568 + 7                                              MAY   109.80 + 0.30

MAY   1588 + 8                                              JUL     112.10 + 0.25

JUL    1607 + 9                                              SEP     114.30 + 0.20

SEP    1625 + 9                                              DEC    117.50 + 0.15