I. & M. Smith (Pty) Ltd. since 1915
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I. & M. Smith (Pty) Ltd.

Coffee Market Report

28 Jul 2015
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 increase their net short sold position within the market by 0.93% over the week of trade leading up to Tuesday 21st. July; to register a net short sold position of 17,351 Lots on the day. Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 0.23%, to register a net long position of 27,833 Lots on the day.

Meanwhile the Non Commercial Speculative sector of this market increased their net short sold position within the market by 0.82% over the same week; to register a net short sold position of 23,534 Lots. This net short sold position which is the equivalent of 6,671,785 bags has most likely been increased again, over the period of mixed but overall marginally negative trade that has since followed and likewise, that of the Managed Money fund sector of the market.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative sector of this market decrease their net long position within the market by 41.52% over the week of trade leading up to Tuesday 21st. July; to register a net long of 9,436 Lots on the day. This net long that is the equivalent of 1,572,667 bags has most likely been further reduced, over the period of mixed but overall negative trade that has since followed.

The authorities in Vietnam and with the export registrations for the month in hand have estimated that the country shall export approximately 1,916,667 bags of mostly robusta coffee during the month of July, which would be 29.8% higher than the same month last year. This volume they report would result in cumulative exports for the first ten months of the present October 2014 to September 2015 coffee year to be 22.7% lower than the same period in the previous coffee year, at a total of approximately 18,166,667 bags.

There were some light showers experienced over the past weekend within the main arabica coffee districts in south east Brazil over the weekend, but forecasters foresee a mostly dry week to the fore and the new arabica coffee crop that is now peaking to continue to come to the fore. Thus for the present and with only two and half weeks of the traditional Brazil frost season to go, there appears to be no real threat to the prospects of the new Brazil crop that many foresee to be well above 50 million bags. Albeit that the country is now heading into the full moon, which has always been seen to be the highest frost risk period.

With the somewhat historic visit to Kenya by President Obama and a visit that coincided with the Annual Global Entrepreneurship Summit that was being held within the country and for the first time in sub-Saharan Africa, a Nairobi based financial advisory company Stratlink came forth with some rather disappointing figures related to the demise over the past three decades of the once dominant Kenyan coffee industry, in terms of its contribution to the country’s economy. In this respect and quoting data from Kenya’s National Bureau of Statistics for 2014, that coffee which historically was one of the stars in terms of Kenyan exports, now only accounted for 5.14% of the combined value of the top ten foreign exchange earners of the country for the year.

The report noting that foreign exchange income from the top ten contributing industry sectors in Kenya was dominated by the 71.8% share of foreign exchange earnings that were related to the combination of the Horticultural, Tea and Tourism industries, with even the Apparel (clothing and accessories) industry holding a 7.5% share of earnings. This relatively small 5.14% contribution by coffee is of course not only related to the growth of these other sectors of the Kenya economy, but also to the fact that coffee production and export volumes are approximately 60% lower than their peak twenty five years ago.

The arbitrage between the markets broadened on Friday to register this at 46.60 usc/Lb., while this equates to a 38.70% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, but is perhaps due to widen further in time and when Vietnam stocks start to impact upon the fortunes of the London market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 3,825 bags yesterday; to register these stocks at 2,117,206 bags. There was meanwhile a larger in volume 5,130 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 5,450 bags.

The commodity markets and despite improved manufacturing data from the U.S.A. continued to take an overall softer path yesterday, with the macro commodity index heading south for the day. Meanwhile the further collapse of the Chinese stock markets, tended to underline concerns over the Chinese growth potential for the short term. The Natural Gas, Gold, Silver and Platinum markets had a day of buoyancy and the Sugar, Cocoa and Orange Juice markets were steady, while the Oil, Coffee, Cotton, Copper, Wheat, Corn and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.88% lower; to see this Index registered at 399.61. The day starts with the U.S. Dollar steady and trading at 1.558 to Sterling and 1.107 to the Euro, while North Sea Oil is steady in early trade and is selling at 53.60 per barrel.

The London and New York markets opened the day yesterday on a marginally softer note and with both markets taking a softer track, into the afternoon trade. The afternoon brought with it little relief and the New York market started triggering new one and half year lows, but to see both markets bouncing off the lows on a sideways negative track, though to the end of the day’s trade. The London market continued to end on a soft note and with 92% of the losses of the day intact, while the New York market ended the day on a likewise soft note and with 77.1% of the losses of the day intact. This close does little to inspire, but perhaps with some considering the markets to be somewhat oversold, there might be some degree of buoyancy for early thin trade today against the prices set yesterday, as follows:

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

JUL 1762 – 27
SEP 1627 – 23                             SEP  120.40 – 1.85
NOV 1644 – 22                          DEC  123.65 – 2.00
JAN 1661 – 22                           MAR 127.25 – 2.00
MAR 1682 – 21                         MAY 129.40 – 2.00
MAY 1704 – 21                           JUL 131.55 – 1.90
JUL 1725 – 22                             SEP  133.65 – 1.90
SEP 1747 – 21                            DEC  136.60 – 1.95
NOV 1769 – 21                          MAR 139.55 – 1.90
JAN 1791 – 21                           MAY 141.45 – 1.80