Coffee Market Report May 30 2019

The commodities press reported yesterday that the latest forecast for the new Brazil crop from the well-respected brokers and consultants Intl. F C Stone has foreseen this crop to be approximately 15.9% lower than the previous crop, at a total of 53 million bags.  This to be made up from 36.9 million bags of arabica coffees and 16.1 million bags of conilon robusta coffees. 

This forecast from Intl. F C Stone is significantly lower by approximately 5 million bags than many other forecasts from Brazilian and International brokers, analysts and trade houses, but it is a report from a respected body and assists to buoy sentiment within the market.   Sentiment that has been buoyed over the past few days, by the early cold front that was encountered in South East Brazil, which was a reminder that along with a smaller crop this year, there always remains a frost threat to damage the potential of the follow on 2020 crop.  While there was further support for sentiment yesterday, which came with the firming of the Brazil Real. 

It has been twenty-five years since the main coffee producing districts within South East Brazil have encountered any significant damaging frost event, but world weather is erratic and one cannot completely discount the possibility of frost.   Many within the industry and the speculative sectors of coffee market, shall never have encountered the market reaction to a frost event but all will know of its historical influence upon the market, which is likely to bring with it some degree of cold front volatility for the markets, through to the end of July.  

There have been reports of some quality concerns emanating from Brazil, in terms of the overall quality of the new crop that has started to be harvested.  This related to the fact that many farms experienced multiple flowering last year, which will relate to a lack of uniformity of ripening and with the Brazil strip harvesting that is related to relatively high cost of harvesting, a higher percentage of under and over ripe cherries included with the harvest. 

One would speculate though that with a 21 million bags domestic market to absorb most of the lower quality coffees, that this should not really impact upon the availability of quality coffees for the consumer markets.  These new crop arabica coffees due to be supplemented by some volumes of quality carry over Brazil arabica coffee stocks, from last year’s bumper crop. 

Today is the Ascension Day public holiday for many leading European countries, but does not impact upon the USA and UK and the coffee markets.   It is likely though in terms of physical trade and the significant consumer market share of the Western Europeans, to somewhat mute business for the day. 

The July to July contracts arbitrage between the London and New York markets broadened yesterday, to register this at 35.45 usc/Lb., while this equates to 35.63% 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 3,091 bags yesterday; to register these stocks at 2,404,134 bags.  There was meanwhile a smaller in number 906 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 1,593 bags. 

The commodity markets were mixed in trade yesterday, to see the overall macro commodity index on something of a sideways track for the day.  The Sugar and Coffee markets ended the day on a positive note, while the Cocoa market ended the day on a softer note.   The Reuters Equal Weight Continuous Commodity Index that is related to 17 markets, is 0.12% higher, to see this index registered at 395.03.   The day starts with the U.S. Dollar steady and trading at 1.263 to Sterling, at 1.113 to the Euro and with the US Dollar buying 3.974 Brazilian Real. 

The London market started the day yesterday trading around par and the New York market on a modest positive note, with the London market soon joining the New York market within modest positive territory and taking this track, into the early afternoon trade.   As the afternoon progressed both markets started to add value and started to trigger buy stops, which accentuated the gains and took both markets sharply higher and against relatively high volumes of trade.   

The London market ended the day on a very positive note and with 85.1% of the gains of the day intact, while the New York market ended the day on a likewise very positive note and with 82.1% of the earlier gains of the day intact.  This positive close is likely to inspire some degree of confidence but following the high volumes yesterday there might be some degree of exhaustion and with the markets having fallen back from the highs, some degree of caution.  To most probably set the markets for another hesitant near to steady start for early trade today, against the prices set yesterday, as follows: 

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

JUL    1412 + 40                                            JUL       99.50 + 3.45

SEP    1430 + 38                                            SEP    101.75 + 3.45

NOV   1454 + 38                                            DEC    105.30 + 3.50

JAN    1475 + 39                                            MAR   108.70 + 3.45

MAR   1495 + 39                                            MAY   110.75 + 3.35

MAY   1515 + 39                                            JUL    112.45 + 3.25

JUL    1435 + 40                                            SEP    114.10 + 3.20

SEP    1556 + 40                                            DEC   116.70 + 3.10

NOV   1576 + 40                                            MAR   119.30 + 2.90

JAN    1595 + 39                                            MAY   121.00 + 2.75