Coffee Market Report January 23 2017

The latest Commitment of Traders report from the New York arabica coffee market has seen the Non-Commercial Speculative sector of this market increase their net long position within the market by 70.35% during the week of trade leading up to Tuesday 17th. January; to register a net long position of 18,802 Lots on the day.  This net long position which is the equivalent of 5,330,284 bags has most likely been further increased, following the period of mixed but overall more positive trade, which has since followed. 

The rains have largely been good in Colombia over the past year and are supportive for the maintenance of ground water retention levels on most of the coffee farms, but there are some concerns that with the trees so healthy that in many districts it will have been limiting stress and by nature, resulting in relatively modest flowering towards the next new main crop that starts in October this year.   It is noted though, that so far these concerns have not been voiced by the Colombian Coffee Federation and for the present, no fears of Colombia not being able to maintain medium term production at around 14.5 million bags per annum. 

The same scenario has been reported by farmers in Costa Rica and Nicaragua to the north of Colombia, were rather than being negative to stress and the flowerings for the next crop as is it still too early for this region, the good volumes of rain over the past couple of months have proven to have been disruptive to the new crop harvest.   There have likewise been hints towards early cherry drop and drying problems from both countries, but nothing quantifiable in terms of what impact it might have had upon the prospects of their new crop that is presently being harvested.   

Thus, for the present and following last year’s good arabica coffee crop in Brazil and with rising overall arabica coffee supply forecasted for Colombia, the Central American producer bloc and Peru later this year, there are no significant fears over the prospects for short to medium term arabica coffee supply.   But despite the lack of such supportive fundamental news for the New York arabica coffee market, this market is once again showing a good degree of buoyancy. 

However, with the latest news of the rising net long positions held within this market by the funds and the speculative sectors of the market and with little in the way of fundamental justification for a strong rally, one might think that the market is once again becoming over bought and might soon hid something of a ceiling and with increased catch up producer price fixation selling activity, start to falter.   But with the unpredictable funds and today’s weakening U.S. dollar that is supportive for the market, nothing is certain and it is likely to be an interesting start to this week’s trade.  

The March to March contracts arbitrage between the London and New York markets broadened on Friday, to register this at 50.64 usc/Lb., while this equates to a 33.05% 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 918 bags on Friday; to register these stocks at 1,289,877 bags.  There was meanwhile a larger in number 2,889 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 28,261 bags. 

The commodity markets were mixed but with most moving to the positive side of par on Friday, to see the overall macro commodity index taking a positive track for the day.  The Oil, New York arabica Coffee, Cotton, Copper, Wheat, Corn, Gold and Silver markets had a positive day’s trade and the Sugar and London robusta Coffee markets ended the day on steady note, while the Natural Gas, Cocoa, Orange Juice and Soybean markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.18% higher, to see this Index registered at 429.79.   The day starts with the U.S. dollar tending a little softer and trading at 1.244 to Sterling and 1.075 to the Euro, while North Sea Oil is tending softer and is selling at $ 54.95 per barrel. 

The London and New York markets started the day yesterday on Friday on a steady note, but with the New York market soon attracting support and to see the London market taking a steady track and the New York market a modestly positive track, into early afternoon trade.   As the afternoon progressed and with the New York market continuing on an erratic upside track, the London market remained under modest pressure and dipped back below par but to recover the losses late in the day and to end the day on a steady note, while the New York market ended the day on something of a high, albeit with relatively thin volumes of trade, not really a strong indicator for the market.   The London market ended unchanged for the day and the New York market ended the day on a very positive note, with 94.2% of the earlier gains of the day intact.   This close is somewhat positive for sentiment as are the charts supportive, but one might expect to see something of a cautiously hesitant start for early trade today and perhaps little better than a near to steady start for the volatile New York market against the prices set on Friday, as follows: 

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

JAN      2274 + 3  

MAR     2261 unch                                             MAR   153.20 + 2.45

MAY     2262 + 1                                                 MAY   155.60 + 2.45

JUL      2264 unch                                              JUL    157.90 + 2.45

SEP      2266 unch                                             SEP    160.10 + 2.45

NOV     2266 unch                                              DEC   163.05 + 2.35

JAN      2266 + 3                                                 MAR   165.85 + 2.30

MAR     2262 + 3                                                 MAY   167.45 + 2.30

MAY     2264 + 3                                                 JUL    169.00 + 2.30

JUL      2274 + 3                                                 SEP    170.50 + 2.30