Coffee Market Report December 30 2016

There is presently nothing in the way of striking fundamental news coming to the fore for the coffee markets, which are looking to an October 2016 to September 2017 coffee year of stable to perhaps even marginally surplus overall coffee supply, but with global coffee stocks somewhat reduced following the 2014 and 2015 deficit crops out of Brazil.   This latter low producer stocks factor makes the markets very sensitive to any presently unforeseen weather issues for any of the main coffee producer blocs, which might assist to limit the speculative downside to the markets in the coming weeks. 

As the year comes to a close the fundamental reality of a small surplus supply of arabica coffees as against the deficit supply of robusta coffees is becoming very evident, in terms of the arbitrage between the New York arabica coffee market and the London robusta coffee market.   This narrowing of the price differences between the markets more than likely to remain in place until at least the second quarter of next year, by which time and unpredictable weather conditions aside, there should be increasing robusta coffee supply coming to the fore from Brazil and Indonesia. 

The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 39.47 usc/Lb., while this equates to a 29.14% price discount for the London robusta coffee market.  This narrowing arbitrage is now becoming less of an attractive factor for the roasters who have considered robusta coffees to be an opportunist discount component, within their mostly arabica coffee blends. 

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 16,196 bags yesterday; to register these stocks at 1,247,486 bags.  There was meanwhile a smaller in number 10,679 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 38,729 bags. 

The commodity markets had another mixed day yesterday and with the overall macro commodity index likewise, taking something of a sideways track for the day.   The Sugar, Coffee, Cotton, Orange Juice, Wheat, Corn, Gold and Silver markets had a day of buoyancy, while the Oil, Natural Gas, Cocoa, Copper and Soybean markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.33% higher; to see this Index registered at 420.26.   The day starts with the U.S. dollar tending softer and trading at 1.228 to Sterling and 1.053 to the Euro, while North Sea Oil is showing some degree of buoyancy and is selling at $ 56.10 per barrel.

The London and New York markets started the day yesterday on a steady note and with both markets soon taking a step up into positive territory and taking a positive track into the afternoon trade, which assisted to build some degree of confidence within the more volatile New York market and with buy stops being triggered, an impressive rally.    The London market took a steadier upside track through to the close, while the New York market came under pressure to slip back and to limit the gains for the day.  The London market ended the day on a very positive note and with 81.2% of the earlier gains of the day intact, while the New York market ended the day on a positive note but with only 40.2% of the earlier gains of the day intact.   This positive close might assist to inspire some degree of confidence and one might expect that with a marginally softer U.S. dollar in play and year end book closing ahead of the New Year long weekend and Monday’s closed markets, to see a hesitant steady start for early trade today against the prices set yesterday, as follows: 

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

JAN      2125 + 40

MAR     2116 + 39                                               MAR   135.45 + 1.95

MAY     2123 + 37                                               MAY   137.75 + 1.90

JUL      2130 + 38                                               JUL     140.05 + 1.90

SEP      2133 + 38                                              SEP     142.10 + 1.90

NOV     2138 + 38                                               DEC    145.10 + 1.90

JAN      2136 + 38                                               MAR   148.00 + 1.95

MAR     2137 + 38                                               MAY   149.70 + 1.95

MAY     2142 + 38                                               JUL    151.35 + 2.00

JUL      2152 + 38                                               SEP    153.05 + 1.95