The respected U.S. Department of Agriculture Global Agricultural Network (USDA) have come forth to report their forecast for the for the July 2021 to June 2022 Brazil coffee crop remains unchanged from their estimate earlier in the year, at a total of 56.30 million bags. This represents a decrease in production of 6.94% when compared to the previous July 2019 to June 2020 biennially bearing low year cycle and a decrease in production of 19.46% in production when compared to the bumper crop of July 2020 to June 2021 coffee year.
The USDA report reflects a 16.67% decrease in primarily natural process arabica coffee production for the July 2021 to June 2022 crop year to total 35 million bags, and a 15.14% increase in Conilon Robusta coffee production, to total 21.30 million bags, when compared to the previous biennially bearing low year cycle of July 2019 to June 2020. This further relates to a 29.58% decrease in primarily natural process arabica coffee production for the July 2021 to June 2022 crop year and a 5.45% increase in Conilon Robusta coffee production when compared to the previous July 2020 to June 2021 coffee year.
Of this current crop, the USDA forecast is that Brazil will export 28.04% or 11,687,000 bags less than the previous bumper crop of July 2020 to June 2021 marketing year, estimated to reach a total of 30 million bags of green coffee for this current July 2021 to June 2022 coffee year. The anticipated exports from the current coffee crop foreseen to be around 6 million bags lower, than the previous, comparative lower biennial bearing cycle, during the July 2019 to June 2020 coffee marketing year. This lower biennial bearing year for the Brazil coffee crop is further constrained by continuous logistical challenges and disruptions, for coffee exports from Brazil.
The new Brazil coffee crop to come, is gradually developing and for the most part, weather has continued to be reported as conducive to contribute to the next biennial upcycle crop that is to come in the year to follow in 2022/23. While the USDA has not provided their estimate for this crop to come in this latest report; there have been other early forecasts released to indicate a production potential of around 63 million bags, albeit with some time ahead and further independent forecasts to come to the fore.
There remains some influence on the prevailing buoyant value in the New York and London markets, in the current, severe restrictions on movement of cargo, shipments, space on vessels, container and equipment limitations, throughout the globe. Within the coffee sector the delays to ship from producer countries, has led to heightened demand for existing consumer stocks, which with the sequential drawdown reported serves as speculative affirmation to underscore the demand side view, and boost upward sentiment in the already buoyant coffee futures markets.
These logistical disruptions that continue to be felt worldwide, brought about as a result of pandemic related restrictions have likewise contributed to the supportive nature of the coffee spot market in consumer markets. There is in addition, growing evidence that the recently rising market might inspire some internal market selling resistance and non-deliveries of new crop coffees by farmers within some producer countries, is raising concern over short term coffee supply. Albeit that the prevailing speculative influenced coffee futures markets remain vulnerable to negative corrections, should the market start to falter, may encourage catch-up origin selling within coffee producer markets in the short to medium term.
The rising value of the reference prices of the coffee futures markets, that has seen the New York arabica coffee front month and the London Robusta coffee front month, post significant gains from the outset of the calendar year, to see the New York arabica register an increase of 80.03% and 59.40% in the London robusta markets. Of the increased value from the start of the calendar year, 50% of the gain reflected in the New York arabica market, and although slower to react, in London robusta, near to 35% of the gain posted, has occurred through short bursts of mainly speculative, technical rallies within a comparatively short five months, following the damaging frost occurrences in mid-year.
The coffee terminal markets have extended their rally this week, with the New York market surging to hit its highest level in over ten years. Heightened freight costs and shipping delays from the world’s largest producer countries, continue to provide volatility to the futures markets. The New York Arabica market registering an inverted structure, with discounts rather than the traditional structure of premiums that would apply for the forward delivery months, from May 2022 through to September 2024 against the March 2022 delivery month.
Meanwhile in terms of coffee weather, the Australian Government Bureau of Meteorology have maintained their view that a La Niña phenomenon has developed for the second consecutive year. The La Niña weather phenomenon is characterised by unusually cold temperatures in the equatorial Pacific Ocean and historically brings with it excessive rains for the Pacific Rim countries and in terms of coffee, having an impact upon the climatic conditions within Colombia, Indonesia and Peru, while it can also influence dry conditions for the arabica coffee districts in Southeast Brazil.
The January 2022 to March 2022 contract arbitrage between the London and New York markets widened yesterday to register this at 137.86 usc/Lb. This equates to 56.96% price discount for the London Robusta coffee market. This wide arbitrage will likely be viewed by price sensitive roasters as an attractive alternative discount for robusta against the comparatively higher value arabica coffee.
The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 70,731 bags yesterday, to register these stocks at 1,682,237 bags, with 95.74% of these certified stocks being held in Europe at a total of 1,610,642 bags and the remaining 4.26% being held in the USA at a total 71,595 bags. Of this, a total 845,925 bags, or 50.29% of the coffees registered and stored in consumer country certified warehouses of the exchange, Brazil washed arabica, and a further 43.54% of these certified coffees, originating from Honduras. There was meanwhile an increase of 60,294 bags to the number of bags pending grading to the exchange; to register 72,419 bags pending grading on the day.
The Certified Robusta coffee stocks held against the London exchange have been reported to decrease by 78,333 bags over the week of trade leading up to Monday 22nd. November to see these stocks registered at 1,817,333 bags, on the day.
It was a mixed day on the commodity markets yesterday, as the US Dollar bolstered its gains against a basket of other currencies for a third consecutive session. The Sugar, Coffee, Cocoa, Wheat and Corn markets ended the day on a firmer note, while the Soybean, Gold, Silver, Palladium and Platinum market ended the day on a softer note. The day starts with the U.S. Dollar trading at 1.337 Sterling, at 1.124 the Euro and with the US Dollar buying 5.571 Brazil Real.
The New York market started the day yesterday trading on a firmer note whilst the London market started the day yesterday trading on a modest softer note. The markets hesitantly dropped back to trade to the south of par before the New York market was seen to attract a degree of buying support to set the market on a firmer path for the reminder of the day, with the London market following suit albeit in a more sedate manner. As the afternoon progressed the New York market started to add more value and quickly trigger buy stops along the way to accentuate the gains for the day.
The London market followed suit with the influence of further weight being added within the New York market, to likewise add more value, gaining momentum throughout the session. The London market encountered resistance late in the day to drop back from the highs of the day and settle on a firmer note at the close. The New York market continued to be driven by buying support, as pressure continued to trigger speculative buy stops along the way before hitting a ceiling late in the day, to limit the gains and see the market settle on a very firm note at the close.
Tomorrow, 25th November is the Thanksgiving National Holiday in the USA, which shall see the New York market closed for the day and the London market trading solo for the day.
The London market ended the day on a positive note and with 60.53% of the gains of the day intact, while the New York market ended the day on a likewise positive note and with 79.93% of the gains of the day intact. This firmer close, with the New York market gaining momentum throughout the session and settling near to the highs of the day might inspire some degree of follow through momentum and one might think that the markets might be pressured for a follow through steady start to early trade today, against the prices set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK USC/LB.
JAN 2297 + 46 MAR 242.05 + 10.75
MAR 2234 + 36 MAY 241.55 + 10.25
MAY 2201 + 26 JUL 241.10 + 9.90
JUL 2196 + 23 SEP 240.65 + 9.65
SEP 2190 + 20 DEC 240.95 + 9.70
NOV 2191 + 19 MAR 241.25 + 9.70
JAN 2200 + 19 MAY 241.25 + 9.65
MAR 2198 + 19 JUL 241.15 + 9.55