Coffee Market Report January 13 2017

The Brazil weather forecasts indicate more rain for the country’s main arabica coffee districts for the coming week, but perhaps only modest rains for the largest conilon robusta producing state of Espiritu Santo.   This is something of a concern for the new conilon crop as following the many weeks of hot and dry weather, there are once again irrigation restrictions for the state and there is little doubt that this shall impact negatively upon the prospects of the next harvest that starts in three months’ time.   

Meanwhile Brazil has reported the country’s exports of value added soluble coffees for the month of December at a relatively significant 319,331 bags, calculated in terms of their green bean equivalent.   This had contributed to soluble coffee exports for 2016 to have been the equivalent of a record 3.9 million bags, but one might question with this industry related to the conilon robusta coffees and with the tight supply and related extremely high internal market prices for these coffees, how it might start to impact upon the competitiveness of Brazil soluble coffees within the consumer markets.   

The U.S. Government Climate Prediction Centre has reported that the mild El Niña phenomenon that has been in play over the past few months is on the wane and that within a few weeks and that most of at least the first half of this year, shall see neutral conditions for the Pacific Ocean.   Thus, indicating that there should be normal weather conditions for the Pacifica rim coffee producing countries, for the short to medium term. 

There are only two weeks to go before Vietnam closes down for the week-long Tet New Year holiday, to celebrate the coming Year of the Rooster.   While with the reference prices of the London market presently forwarding relatively good value, one might expect to see good volumes of internal market robusta coffee selling activity and contributing to exporter price fixation hedge selling to remain over the London market for the period.   But one might speculate that post the Tet holiday and with the view to medium term deficit robusta coffee supply, that the internal market in Vietnam is due to encounter rising farmer and internal trade price resistance, to perhaps buoy the fortunes of the London market from thereon.  

The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 49.90 usc/Lb., while this equates to a 33.36% 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 4,903 bags yesterday; to register these stocks at 1,278,389 bags.  There was meanwhile a larger in number 5,223 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 44,400 bags. 

The commodity markets and with a softer U.S. dollar in play and confidence seen within the Oil markets were mostly positive in trade yesterday, to see the overall macro commodity index took a positive track for the day.   The Oil, Natural Gas, Sugar, Cocoa, New York arabica Coffee, Copper, Orange Juice, Wheat, Soybean and Gold markets had a day of buoyancy, while the London robusta Coffee, Corn and Silver markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.12% higher; to see this Index registered at 432.70.   The day starts with the U.S. dollar showing a degree of buoyancy and trading at 1.215 to Sterling and 1.062 to the Euro, while North Sea Oil is steady and is selling at $ 54.75 per barrel. 

The London and New York markets started the day yesterday on a near to steady note, while the New York market started the day with follow through buoyancy.   This remained the track into the early afternoon trade and with both markets moving into positive territory, but as the day progressed the New York market started to falter and dipped back into negative territory and followed by the London market, but while the New York market soon recovered to remain above par for late trade, the London market remained south of par for the close.  The London market ended the day on a modestly softer note and with 66.7% of the earlier losses of the day intact, while the New York market ended the day on a modestly positive note and with only 23.1% of the earlier gains of the day intact.   This close might be somewhat damaging for confidence but with the charts still looking somewhat positive for the more volatile New York market and despite the short term price fixation selling activity that is impacting upon the London market, one might think that the markets might be due for a hesitant near to steady start for early trade today against the prices set yesterday, as follows: 

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

JAN      2210 – 18  

MAR     2198 – 20                                               MAR   149.60 + 0.60

MAY     2205 – 17                                               MAY   152.00 + 0.60

JUL      2212 – 17                                               JUL     154.30 + 0.65

SEP      2218 – 16                                              SEP     156.50 + 0.65

NOV     2221 – 15                                               DEC    159.55 + 0.65

JAN      2221 – 15                                               MAR   162.45 + 0.65

MAR     2220 – 15                                               MAY   164.15 + 0.65

MAY     2222 – 15                                               JUL    165.75 + 0.70

JUL      2232 – 15                                               SEP    167.30 + 0.65