Coffee Market Report July 15 2019

The latest Commitment of Traders report from the New York arabica coffee market has seen the Non-Commercial Speculative sector of this market decrease their net short sold position within this market by 23.93%; over the week of trade leading up to Tuesday 9th. July; to register a new net short sold position of 17,803 Lots.  This net short-sold position which is the equivalent of 5,047,072 bags has most likely been little changed, following the period of mixed but overall sideways trade that has since followed. 

Well illustrating the problems being encountered by coffee producers is the evidence that while coffee exports for the first nine months of the present October 2018 to September 2019 coffee year from Honduras were 23.54% lower than the same period in the previous coffee year, the value of these exports was 32.23% lower than the same period in the previous coffee year.   This is particularly a problem, as the value of coffee export prices for the previous 2017 to 2018 coffee year, were already bringing only marginal profits to most of the country’s coffee farmers.  

This issue of prices has been under debate within Colombia for many months already, with both the Colombian Coffee Federation and the countries Government looking to find ways in which to create internal market price support for the approximate 540,000 families who are related to this industry, with the Government confirming the creation of a Price Stabilization Fund.   This Fund to assist farmers with price support, for 70% of their individual production and presumably, leaving the farmers to have to accept the free market price dictates for the balance of their production. 

Meanwhile there is aside from the evidence of a smaller arabica coffee crop coming in from Brazil at present, little in the way of supportive fundamental news coming to the coffee markets.   While with Brazil having had a significant carry over stock of arabica coffees from the past crop, even the thoughts of the smaller new crop have provided little in the way of support for speculative sentiment within the coffee markets. 

There has though been the talk of some minimal frost damage for the prospects of what many foresee to be a large new arabica coffee crop due for Brazil in 2020 and this has assisted to inspire price supportive speculative short covering within the volatile New York market, which has assisted towards some modest price recovery for the producers.   This is however only a very modest recovery and for most producers, the prevailing coffee prices remain a concern. 

The Brazil frost season is not yet over but one would speculate that following the recent cold front having been something of a non-event, that focus shall soon start to be upon the prospects for the forthcoming late September start to the spring and summer rain season for South East Brazil.   With the potential for some dry weather 2020 Brazil crop damage to come into play for the speculative sector of the market, should the rains not prove to be fair and regular.   Albeit that so far, there has been no reason voiced to indicate that there should be any concern over Brazil weather conditions for the last quarter of this year. 

The September to September contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 42.06 usc/Lb., while this equates to 39.44% price discount for the London Robusta coffee market.   

The Certified washed Arabica coffee stocks held against the New York exchange with the exchange were seen to decrease by 528 bags on Friday; to register these stocks at 2,367,388 bags.  There was meanwhile no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 0 bags. 

The commodity markets had a mixed but mostly firmer day of trade on Friday, to see the overall macro commodity index showing some degree of buoyancy for the day.   The Brent Oil, Natural Gas, Cocoa, Copper, Orange Juice, Wheat, Corn, Soybean, Gold and Silver markets ended the day on a positive note and the U.S. Oil was steady, while the Sugar, Coffee and Cotton markets ended the day on a softer note.    The Reuters Equal Weight Continuous Commodity Index that is related to 17 markets is 0.52% higher; to see this index registered at 403.28.   The day starts with the U.S. Dollar steady and trading at 1.257 to Sterling, at 1.127 to the Euro and with the US Dollar buying 3.740 Brazilian Real. 

The London and New York markets and with a relatively firm Brazil Real in play, started the day on Friday trading with some degree of buoyancy, but with the markets soon faltering and moving back to trade around par for the early afternoon progressed.   As the afternoon progressed both markets remained close to par for most of the time and with the markets taking something of a sideways track, which was mostly marginally south of par. 

The London market ended the day on a negative note and with 75% of the earlier modest losses of the day intact, while the New York market ended the day on a likewise negative note and with 35.3% of the earlier modest losses of the day intact.   This relatively steady close for the markets and with the Brazil Real foreseen to mute new crop selling pressure out of Brazil might be seen to be supportive and to set the markets for a steady start for early trade today, against the prices set on Friday, as follows: 

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

JUL    1393 – 3                                              JUL    105.20 – 0.30

SEP    1424 – 3                                             SEP    106.65 – 0.30

NOV   1452 – 4                                             DEC    110.40 – 0.35

JAN    1480 – 4                                             MAR   114.05 – 0.30

MAR   1504 – 5                                             MAY   116.35 – 0.30

MAY   1528 – 4                                              JUL    118.30 – 0.35

JUL    1549 – 3                                              SEP    120.15 – 0.40

SEP    1568 – 2                                              DEC   122.90 – 0.45

NOV   1584 – 2                                              MAR   125.60 – 0.50

JAN    1601 – 2                                              MAY   127.35 – 0.50