Coffee Market Report January 18 2017

The Brazils Official Crop Supply Agency CONAB and with the new crop cherries presently developing on the trees towards the new crop that starts to be harvested during the second quarter of this year, have forecasted that following last year’s crop of 51.37 million bags, that this year’s new coffee crop shall be between 43.65 to 47.51 million bags.   It has to be noted however that this traditionally conservative body is usually seen to be approximately 10% below reality and therefore, one might read into it that the forecast is indicating a new crop of close to 50 million bags. 

One might comment that with the consumer market demand for Brazil coffees and a healthy domestic consumption, that this report even when adjusted, is indicating a modest deficit supply to come with this new crop and over and above what would be foreseen to be only very modest carryover stocks into this crop.   Thus, a report which is presently supportive for the positive sentiment that is contributing to the prevailing coffee market buoyancy, albeit that there is often a degree of market scepticism towards the CONAB crop forecast reports.   

The Vietnam Customs Authorities have confirmed yesterday that the countries coffee exports for the 2016 were 32.8% higher than the previous year, at a total of 29.67 million bags, while the value of these coffee exports they say were 24.9% higher than the previous year, at a total of 3.34 billion U.S. dollars.   These exports were aside from a domestic coffee consumption that is seen to now be approximately 3 million bags per annum and would have by nature, significantly reduced the carryover stocks into the new crop that has just been completed. 

This said one would think that with the smaller new crop to fuel coffee exports for 2017 and on top of reduced carryover stocks into this new crop, the coffee export potential for this year might well be reduced to perhaps closer to 26 million bags.    Thus, and with the surge in 2016 having not been related to any significant rise in the terminal market stocks held against the London market and indicating that the aggressive exports were rather fuelling consumer market demand, that there are definitely prospects for tighter consumer market robusta coffee supply due for the coming months. 

The Green Coffee Association of the U.S.A. have announced that the countries port warehouse stocks increased by 57,657 bags or 0.93% during the month of December, to register these stocks at 6,256,140 bags at the end of the month.   These stocks do not of course include the in-transit bulk container coffees or the onsite roaster inventories, which with an approximate combined U.S.A. and Canadian weekly consumption that is supported by these stocks of 560,000 bags per week, would conservatively have been at least 1.1 million bags. 

Therefore, if one is to consider the additional unreported stocks and look to end November stocks in North America of approximately 7.3 million bags, it would have equated to something in the order of 13 weeks of roasting activity.  This number remains a safe reserve, in terms of the steady flow of new crop arabica coffees from Brazil and Colombia that are already coming to the market and soon to be followed, by the new crop arabica coffees from Central America, along with the new crop robusta coffees from Vietnam.  

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 48.01 usc/Lb., while this equates to a 32.16% 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 7,253 bags yesterday; to register these stocks at 1,292,538 bags.  There was meanwhile a smaller in number 1,467 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 38,650 bags. 

The Certified Robusta coffee stocks held against the London exchange were seen to increase by 18,833 bags or 0.78% over the week of trade leading up to Monday 16th. January, to see these stocks registered at 2,430,000 bags, on the day. 

The commodity markets post the long weekend for the U.S. markets and with a slightly softer U.S. dollar in play, had a day of buoyancy for most markets yesterday, to see the overall macro commodity index taking a positive track for the day.   The Oil, Sugar, Cocoa, Coffee, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy, while the Natural Gas, Cotton, Copper and Orange Juice markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.33% higher, to see this Index registered at 433.67.   The day starts with the U.S. dollar steady and trading at 1.233 to Sterling and 1.068 to the Euro, while North Sea Oil is steady and is selling at $ 54.50 per barrel. 

The London and New York markets started the day yesterday on a near to steady note, but with the markets soon working their way back to par and taking a steady track into the early afternoon trade.  As the afternoon progressed both markets moved up into positive territory and with the fundamentally strong London market attracting buy stops to accentuate the gains, while the New York market set on a steadier but erratic upside track.   The London market did however falter and falling off its highs it attracted sell stops and took a downside track trough to the close and shedding most of the earlier gains on the way down, while the New York market took an erratic modest positive sideways track to the close.  The London market that had hit four and half year highs ended the day on a modestly positive note but with only 19.2% of the earlier gains of the day intact, while the New York market ended the day on a positive note and with 41.4% of the earlier gains of the day intact.  This close does nevertheless assist to maintain a positive picture for the charts, but with the markets having seen to have encountered a degree of exhaustion yesterday, one might expect to see an only a hesitant and perhaps 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      2254 + 13  

MAR     2238 + 5                                                 MAR   149.90 + 0.60

MAY     2240 + 5                                                 MAY   152.30 + 0.60

JUL      2242 + 4                                                 JUL    154.60 + 0.60

SEP      2244 + 4                                                SEP     156.80 + 0.55

NOV     2244 + 4                                                 DEC    159.85 + 0.55

JAN      2244 + 4                                                 MAR   162.70 + 0.50

MAR     2243 + 4                                                 MAY   164.35 + 0.50

MAY     2245 + 4                                                 JUL    165.90 + 0.50

JUL      2255 + 4                                                 SEP    167.45 + 0.55