Coffee Market Report January 11 2017
The new Vietnam crop that is dominated by an approximate 96% share of robusta coffees is seen to be over 90% complete, with the remaining coffee cherries expected to be harvested within the next couple of weeks. But indications are that farmers with the advantage of the good profits that the reference prices of the buoyancy London market are dictating, are not showing much in the way of selling aggression.
There are however still good volumes of new crop coffees coming to the exporters for the present and despite the potential end of the month interruption that shall come with the Tet New Year holidays to celebrate the start of the Year of the Rooster, the local trade is forecasting exports of mostly robusta coffees for the month of January to rise to approximately 3 million bags. However even if this might prove to be a realistic number, one might expect that with a smaller new crop on the cards and over and above reduced carryover stocks into the new crop, that export volumes shall start to diminish in the coming months and likewise, shall internal market price resistance start to become more evident.
There are comments coming to the fore that the last couple of weeks in December and the start of this year has been mostly dry for the state of Espiritu Santo, which is the largest coffee state for conilon robusta coffee in Brazil. This following the late start to the rain season during the last quarter of last year within this state and despite many farms utilising supplementary irrigation within the state, does not bode well for the prospects of this year’s forthcoming conilon robusta coffee crop. Hinting towards limited robusta coffee export potential from Brazil until 2018 which with the smaller Vietnam robusta coffee crop this year, would support the prospects for buoyancy for the related London market for the coming months.
The New York market has meanwhile with the support of the Index funds who have been buying into the market this week, taken a steady upside track for the week. But this is perhaps a short-term support factor, as with the potential modest surplus arabica coffee supply for the present October 2016 to September 2017 coffee year, there is the potential that with producer price fixation selling over the market, that there is a nearby ceiling in terms of value. While with the more reason to believe in fundamental support for the London robusta coffee market, the potential of a further narrowing of the arbitrage between the New York and London markets.
The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 49.63 usc/Lb., while this equates to a 33.60% 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 2,725 bags yesterday; to register these stocks at 1,265,565 bags. There was meanwhile a larger in number 3,581 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 52,609 bags.
The Certified Robusta coffee stocks held against the London exchange increased by 6,500 bags or 0.27% during the week of trade leading up to Monday 9th. January, to register these stocks at 2,411,167 bags.
The commodity markets were mixed in trade yesterday and despite the follow through weakness of the Oil markets, the overall macro commodity index took a positive track for the day. The Natural Gas, Sugar, Cocoa, Coffee, Cotton, Copper, Soybean and Silver markets had a day of buoyancy, while the Oil, Orange Juice, Wheat, Corn and Gold markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.85% higher; to see this Index registered at 428.08. The day starts with the U.S. dollar steady and trading at 1.215 to Sterling and 1.055 to the Euro, while North Sea Oil showing a degree of buoyancy and is selling at $ 52.60 per barrel.
The London and New York markets started the day yesterday with early buoyancy and maintained a positive track into the early afternoon trade when with the support of the positive nature of the overall macro commodity index and the buying activity of the Index funds, the New York market started to add more value and with only slow producer selling over the London market, this market followed New York market in a more sedate manner and to see both markets taking a positive track for the day. The London market ended the day on a positive note and with 75% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 94.6% of the earlier gains of the day intact. This close and with the New York market ending the day on a high is likely to see producers stepping back from the markets to await the possibility of added value and one might expect that with confidence within the markets increased that one might see follow through buoyancy and a steady start for early trade today, against the prices set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK ARABICA USc/Lb.
JAN 2172 + 18
MAR 2162 + 21 MAR 147.70 + 3.50
MAY 2168 + 22 MAY 150.05 + 3.50
JUL 2175 + 23 JUL 152.30 + 3.45
SEP 2180 + 24 SEP 154.45 + 3.50
NOV 2183 + 25 DEC 157.50 + 3.55
JAN 2188 + 28 MAR 160.35 + 3.60
MAR 2186 + 26 MAY 162.05 + 3.60
MAY 2188 + 23 JUL 163.65 + 3.60
JUL 2198 + 23 SEP 165.20 + 3.50