Coffee Market Report January 06 2017

The Agricultural Ministry in Indonesia have forecasted that the countries coffee production for 2017 shall be marginally 0.28% lower than the coffee production in the previous year, at a total of 10,625,650 bags.  But this relatively conservative forecast is perhaps somewhat questionable, as following post La Nina fair weather conditions, one might expect to see improved volumes of coffee coming to the fore later with the new robusta crop that is due to start coming to the market from May this year. 

The report is nevertheless somewhat positive for the fortunes of the London market, as with Vietnam reporting a smaller new crop and on top of lower carry over robusta coffee stocks into the new crop while Brazil has had a dismal deficit conilon robusta coffee crop last year, it would indicate tight and deficit medium term robusta coffee supply to the consumer markets.   

Meanwhile on the short term there is some degree of pressure upon the London coffee market coming from price fixation hedge selling on the part of the exporters in Vietnam, as they build up new crop robusta coffee stocks from the relatively free selling farmers.   This related to the bid by many farmers to build up cash resources in the less than three weeks now left, ahead of the week-long Tet New Year (Year of the Rooster) celebrations, which kick off on the 26th. January. 

This aside there is little in the way of striking fundamental news coming to the markets from the main producer blocs and the focus shall now be with the new crop cherries starting to develop, upon the forecasts that are due for the prospects of the new 2017 Brazil crop.  So far, most forecasts indicate a marginally lower arabica coffee crop and a marginally improved new conilon robusta crop, but numbers that do not indicate much more than a crop that shall be matching overall Brazil coffee demand.    Thus, providing little more than an indication that longer term global coffee supply shall likewise be close to global coffee demand, which is perhaps a contributing factor towards relatively steady terminal markets. 

The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 46.05 usc/Lb., while this equates to a 32.03% 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 2,487 bags yesterday; to register these stocks at 1,252,202 bags.  There was meanwhile a larger in number 6,949 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 61,817 bags. 

The commodity markets were mixed in trade yesterday, but with the overall macro commodity index showing a degree of buoyancy through the day.   The Oil, Cocoa, New York arabica Coffee, Cotton, Wheat, Corn, Gold and Silver markets had a day of buoyancy, while the Natural Gas, Sugar, London robusta Coffee, Copper, Orange Juice and Soybean markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.44% higher; to see this Index registered at 429.12.   The day starts with the U.S. dollar showing a degree of buoyancy and trading at 1.238 to Sterling and 1.058 to the Euro, while North Sea Oil is steady and is selling at $ 55.75 per barrel. 

The London market started the day on a marginally softer note, while the New York market started the day with a degree of buoyancy.    The London market managed to recover to par in the early afternoon trade, while the New York market added value and posted good gains, but while the afternoon progressed the New York market came back off the highs and with the London market once again slipping back into negative territory.   The London market ended the day on a soft note and with 55% of the earlier losses of the day intact, while the New York market ended the day on a positive note and with 53.4% of the earlier gains of the day intact.   One would think that the positive nature of the New York market close, the positive picture being painted by and charts and the firm Brazil Real that is trading at 3.19 to the U.S. dollar are factors that are positive for confidence and that the markets might be due for 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      2166 – 12 

MAR     2154 – 11                                               MAR   143.75 + 1.95

MAY     2158 – 12                                               MAY   146.05 + 1.95

JUL      2164 – 13                                               JUL     148.30 + 1.90

SEP      2168 – 10                                              SEP     150.35 + 1.90

NOV     2170 – 9                                                 DEC    153.30 + 1.90

JAN      2172 – 7                                                 MAR   156.10 + 1.90

MAR     2172 – 8                                                 MAY   157.75 + 1.85

MAY     2177 – 8                                                 JUL    159.35 + 1.85

JUL      2187 – 8                                                 SEP    161.00 + 1.85