Coffee Market Report October 07 2016

It is early day’s for the new spring and summer rain season for south east Brazil, but this week has seen fair overall coverage and including, the recently very dry conilon robusta districts within the state of Espirito Santo, which assists to point towards a normal rain season.  But this shall need to continue regularly in over the next six months, if Brazil is to bring to the fore a good 2017 crop, which shall be much needed if the country is to look to rebuild the depleted coffee stocks and to ensure stable supply for the next October 2017 to September 2018 coffee year. 

Yesterday’s auction of 90,000 bags of aged Brazil government arabica coffee stocks was a success and with 100% of the coffees on offer having been sold, at an average price of 1.03 usc/Lb.    These aged stocks targeting the domestic roasting industry which with the dismal size of this year’s conilon robusta coffee crop, are supplementing conilon robusta coffees with low grade arabica coffees. 

The tightness in the internal market supply of new crop conilon robusta coffees and the related firm prices for these coffees is fuelling speculation that the new crop might have been even smaller than many have speculated.   But it is difficult to evaluate if the conilon robusta crop might have indeed been smaller than reported, or if the restrained supply is more related to farm price resistance with their limited stocks that they still have at least seven months to sell.   

Meanwhile the internal market in Brazil remains relatively quiet and with the conilon robusta coffees aside, the arabica coffee farmers already having some good value new crop sales in hand are seemingly holding back and showing a degree of price resistance.   Taking the stance that with exporters holding good volumes of short sold forward commitments, that they can hold out for value from the countries exporters. 

Brazil aside there is very little in the way of news presently coming to the coffee markets and most certainly nothing in the way of bad news, which leaves speculative focus very much upon the weather reports out of Brazil.  The critical factor being at present, the prospects for the forthcoming 2017 Brazil crop and with the rainfall reports out of Brazil or the lack of it, likely to dictate market direction for the first quarter of the coming year. 

There is however with the relatively dismal conilon robusta crop from Brazil this year some degree of focus upon the soon to start new Vietnam robusta coffee crop, which most now speculate to be a smaller crop.   This factor supportive for the fortunes of the London market and to a lesser degree with the prospects for low grade arabica robusta replacement within many blends for the next eight months, for the New York market.   

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 58.08 usc/Lb., while this equates to a 38.78% price discount for the London robusta coffee market.  This arbitrage is perhaps becoming a less 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 4,280 bags yesterday; to register these stocks at 1,256,897 bags.  There was meanwhile a similar in number 4,374 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 21,229 bags. 

The commodity markets with a firmer U.S. dollar coming into play on the back of good U.S.A. economic data and speculation for a dollar rate hike before the end of the year, were mostly under negative pressure yesterday, to see the overall macro commodity index taking a softer track for the day.  The Oil markets nevertheless had a day of buoyancy, while the Natural Gas, Sugar, Cocoa, Coffee, Cotton, Copper, Orange Juice, Wheat, Corn, Soybean, Gold and Silver markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.62% lower; to see this Index registered at 415.99.   The day starts with the U.S. dollar showing buoyancy in early trade and trading at 1.246 to Sterling and 1.112 to the Euro, while North Sea Oil is steady in early trade and trading at 50.35 per barrel. 

The London market started the day yesterday taking a near to steady stance, while the New York market showed some degree of positive buoyancy and with the markets taking a relatively steady track into the early afternoon trade, but this buoyancy was short lived and with the negative nature of the overall macro commodity index having some influence, the New York market slipped back into negative territory.   The fundamentally strong London market did however shrug off the negative influences of the softer New York market that was set on a steady downside track and this market took a marginally softer sideways track for the rest of the day, while the New York market remained on its steady downside track.   The London market ended the day on a softer note and with 66.7% of the relatively modest losses of the day intact, while the New York market ended the day on a soft note and with 87.8% of the earlier losses of the day intact.  This soft close and with the U.S. dollar retaining its muscle in early trade, is likely to inspire little better than a near to steady start for early trade today against the prices set yesterday, as follows: 

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

NOV     1986 – 8                                                 DEC   146.40 – 1.80

JAN      2012 – 8                                                MAR   149.75 – 1.80

MAR     2021 – 6                                                MAY   151.70 – 1.80

MAY     2025 – 5                                                 JUL   153.45 – 1.80

JUL      2031 – 6                                                 SEP   155.15 – 1.70

SEP      2038 – 6                                                DEC   157.45 – 1.45

NOV     2046 – 6                                                MAR   159.45 – 1.15

JAN      2056 – 6                                                MAY   160.55 – 1.10

MAR     2063 – 6                                                 JUL   161.55 – 1.10

MAY     2066 – 6                                                 SEP   162.55 – 1.05