Coffee Market Report October 11 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market decrease their net long position within the market by 14.12% over the week of trade leading up to Tuesday 4th. October; to register a net long position of 38,371 Lots.   Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 0.35%, to register a net long position of 38,256 Lots on the day. 

Over the same week the Non Commercial Speculative sector of this market decreased their long position within the market by 14.73%, to register net long position of 31,973 Lots.   This net long position which is the equivalent of 9,064,204 bags is most likely to have since been increased, following the period of mixed but overall more positive trade that has since followed. 

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Non Commercial sector of this market decrease their net long position within this market by 9.09% during the week of trade leading up to Tuesday 4th. October; to register a long position of 31,827 Lots.  This net long position which is the equivalent of 5,304,500 bags has most likely been since increased, following the period of mixed but overall more positive trade that has since followed. 

Following an 82,892 bags or 7.13% increase in coffee exports for the October 2015 to September 2016 coffee year and based on an October 2015 to March 2016 crop of 1,695,100 bags, the countries National Coffee Institute have forecasted that the countries new crop that is already close to starting in the lower grown districts of the country shall be 6.42% lower than the last crop, at a total of approximately 1,586,233 bags.   This forecast is very much in line with many other trade and industry forecasts for a small dip in Costa Rican coffee production for the pending new crop and therefore, is unlikely to be much of a surprise. 

The dip in Costa Rican production is however due to be countered by early forecasts for larger new crops due from the pending regional harvest, from Mexico, Guatemala and Honduras and for the present the early forecasts are indicating that the Mexican and Central American producer bloc is due for a close to 6% larger new crop at close to 18 million bags.   This aside in terms of Latin American production of fine washed arabica coffee for the coming coffee year, of forecasts for increased production for both Colombia and Peru.   Thus underpinning the perspective that at least for the higher priced sector of the global coffee markets, there is presently no threat over medium to longer term supply. 

However there remain concerns and uncertainty over the longer term supply of natural arabica coffee as following this year’s good harvest in Brazil, there are many internal market voices of concern over the prospects for the next 2017 Brazil arabica coffee harvest.   These related to the combination of erratic rains and the resulting weather uncertainty and the negative effects of biennial bearing, following this year’s good harvest.    While there is no question that following this year’s relatively dismal conilon robusta coffee crop in Brazil, lower robusta production in Indonesia and forecasts for a dip in the pending new Vietnam robusta crop, that medium term robusta coffee supply shall be relatively tight.  Thus despite the lack of threat to washed arabica coffee supply, there remains sufficient supportive news to continue to buoy the speculative spirts within the coffee markets and to support the prevailing trading range, within 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 63.08 usc/Lb., while this equates to a 40.37% price discount for the London robusta coffee market.  This arbitrage is perhaps becoming a less 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 registered no change yesterday; to register these stocks at 1,256,347 bags.  There were meanwhile a relatively large number 6,600 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 24,497 bags. 

The commodity markets experienced a general positive trend yesterday, with the overall macro commodity index taking a positive track for the day.   The Oil, Natural Gas, Coffee, Cotton, Copper, Orange Juice, Wheat, Corn, Gold and Silver markets had a day of buoyancy and the Soybean market was steady, while the Sugar and Cocoa markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.68% higher; to see this Index registered at 419.18.   The day starts with the U.S. dollar showing a degree of buoyancy in early trade and trading at 1.231 to Sterling and 1.113 to the Euro, while North Sea Oil is steady in early trade and trading at 51.25 per barrel. 

The London market started the day yesterday on a steady note and quickly dipping back into negative territory, while the New York market experienced some early buoyancy.  The London market did however soon recover and with both markets taking a modestly positive track into the early afternoon trade and with the New York market starting to pick up support as the afternoon progressed, to take a steady upside track for the rest of the day and followed in a more modest manner by steady gains for the London market.   The London market ended the day on a positive note and with 94.1% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 89% of the earlier sharp gains of the day intact.   This close is constructive for market sentiment but one might expect to perhaps see some modest profit taking and price fixation selling pressure coming into play for the New York market for early trade today against the prices set yesterday, as follows: 

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

NOV     2017 + 16                                               DEC   152.85 + 4.85

JAN      2046 + 17                                              MAR   156.25 + 4.90

MAR     2054 + 19                                              MAY   158.35 + 5.05

MAY     2056 + 19                                               JUL   160.20 + 5.10

JUL      2059 + 16                                               SEP   161.85 + 5.10

SEP      2066 + 16                                              DEC   164.15 + 5.10

NOV     2074 + 16                                              MAR   166.15 + 5.10

JAN      2084 + 16                                              MAY   167.25 + 5.10

MAR     2091 + 16                                               JUL   168.25 + 5.10

MAY     2094 + 16                                               SEP   169.25 + 5.10