Coffee Market Report January 05 2017

There is little in the way of supportive fundamental news coming to the coffee markets, but following the decline in value of particularly the New York arabica coffee market for the end of last year, there has been a tapering off of producer selling pressure upon the markets.   This has apparently with the speculative and fund sectors of the markets showing some degree of selling exhaustion and participating in some short covering buying, assisted to stabilise the coffee markets for the start of this new year.   

In terms of future fine washed arabica coffee supply the authorities in the northern Indian state of Himachal Pradesh and with the support from the Coffee Board of India in terms of seed, are actively encouraging farmers to look to growing arabica coffees.   One would presume that with these farming districts being at the foothills of the iconic Himalaya mountain range, that the image of these mountains will do much to assist them to gain emotive increased value for their export coffees.    

This is however a long-term project and is unlikely to become a factor within the consumer markets for at least four years, but it shall contribute along with developing arabica coffee projects in countries such as Laos and Myanmar, to increasing Asian market share within the quality arabica coffee market sectors of the main consumer markets.   Joining the already well respected arabica coffee supply from Indonesia and Papua New Guinea, to provide for a higher profile for Asian arabica coffee supply and a more balanced view towards Asia in terms of overall coffee supply, where Asia is already the dominant global supplier.  

Noting that the Asian markets which presently only account for approximately 19% of global coffee demand, as against accounting for in excess of 30% of global coffee supply, are the most rapidly increasing coffee consumption markets.  Therefore, with a growing regional demand and profile of coffee in the eyes of the Asian consumers, a factor that would by nature encourage increased regional coffee production in the coming years.  

The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 43.60 usc/Lb., while this equates to a 30.75% 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 increase by 4,710 bags yesterday; to register these stocks at 1,254,689 bags.  There was meanwhile a larger in number 8,875 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 54,868 bags. 

The commodity markets and despite the muscle of the U.S. dollar joined the equity markets for an overall positive day yesterday, to see the overall macro commodity index taking a positive track for the day yesterday.  The Oil, Sugar, Cocoa, Coffee, Cotton, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy, while the Natural Gas and Orange Juice markets bucked the trend and had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.33% higher; to see this Index registered at 427.23.   The day starts with the U.S. dollar tending softer and trading at 1.234 to Sterling and 1.054 to the Euro, while North Sea Oil is steady and is selling at $ 55.15 per barrel. 

The London and New York markets started the day yesterday on a positive note and maintained a positive stance into the early afternoon trade when with the support of the positive nature of the overall macro commodity index and a lack of producer selling over the market that was somewhat influenced by the firming of the Brazil real, the New York market started to make further gains.   Buy stops were triggered and to accentuate the aggression of the Rally in New York, while in the meantime there was likewise a lack of producer selling aggression over the London market and steady gains being made within this market.   The New York market did however start to attract some selling at the highs and to make a small negative correction before taking a sideways positive track for the rest of the day, while the London market maintained a steady positive upside track for the day.   The London market ended the day on a very positive note and with 95.3% of the earlier gains of the day intact, while the New York market ended the day on a positive note and with 79.3% of the earlier gains of the day intact.   This close is likely to buoy confidence and with the charts now painting something of a positive picture, one might expect a follow through steady start for early trade today against the prices set yesterday, as follows: 

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

JAN      2178 + 41

MAR     2165 + 41                                               MAR   141.80 + 4.40

MAY     2170 + 39                                               MAY   144.10 + 4.40

JUL      2177 + 38                                               JUL     146.40 + 4.40

SEP      2178 + 35                                              SEP     148.45 + 4.50

NOV     2179 + 35                                               DEC    151.40 + 4.55

JAN      2179 + 37                                               MAR   154.20 + 4.45

MAR     2180 + 37                                               MAY   155.90 + 4.45

MAY     2185 + 37                                               JUL    157.50 + 4.40

JUL      2195 + 37                                               SEP    159.15 + 4.35