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

Coffee Market Report

28 Aug 2015
The coffee exports so far this year from India are marginally 1% higher than the same period in the previous year, at a total of 3,668,550 bags. These exports were however dominated by robusta coffees which have registered a 22% increase, as against a 33% dip in arabica coffee exports. This was however to have been expected, following the last crop with an approximate 74.5 to 25.5 ratio of robusta to arabica coffees, with the robusta coffee volumes having risen, as against a small dip in the volume of arabica coffee having been harvested.

The early light rains in Brazil this week did not provide full coverage over south east of the country, which is perhaps good news in terms of the rains coming forth to trigger flowering, as there was very little evidence of early flowering. Such flowerings unless followed by regular rains more likely to abort than set and therefore, damaging to the potential of the next crop.

Internal market trade within Brazil was unsurprisingly slow this week, as the first half of the week and despite some assistance from the soft Brazil currency, saw trade having to work with the soft reference prices of the international market. One might expect however if the modest recovery for the New York market over the past two days is to hold and perhaps even be extended, that it shall inspire more activity for the coming week.

There has however been rains encountered over the more northern conilon robusta districts and the related flowerings towards the next years new crop, with the conilon robusta harvest traditionally starting a couple of months ahead of the more southern arabica coffee districts. Thus following this year’s 10% to 15% dip in the volume of the new conilon robusta crop depending on whose reports to believe, there shall be a close eye kept upon the conilon robusta coffee districts for the coming weeks.

In terms of consumption and while the coffee market leader in the U.S.A. J. M. Smucker have reported a rise in value of their sales for the first quarter of their financial year ending on the 31st. July, they have reported a 9% dip in volume for their top brand Folgers Coffee for the period. It is of course only one company within the leading U.S. market, but does somewhat indicate flat consumption within this market. Dipping volumes of sales had inspired J. M. Smucker, to reduce their wholesale prices for their Folgers and Dunkin’ Donuts brands in July and followed by The Kraft Heinz Company, who dropped their wholesale prices for their Maxwell House branded coffees, in a bid to buoy sales.

One must query however if it is just price that is impacting upon the volumes of coffee sales, as was evident within the large European market last year, as there has to be a growing impact from the rising market share of the single serve capsule and pod coffee machines, which make a cup of coffee with 30% to 40% less coffee than a traditional filter or plunger, while being parsimonious in terms of eliminating wastage with the use of a relatively expensive capsule or pod. This is perhaps an indication that the prospects are for overall flat to perhaps even lower volumes of consumption due for the leading consumer markets, for the foreseeable future.

The arbitrage between the markets broadened yesterday to register this at 50.12 usc/Lb., while this equates to a 40.24% 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 increase by 1,825 bags yesterday; to register these stocks at 2,089,865 bags. There was meanwhile a similar in volume 5,775 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 29,698 bags.

The commodity markets were somewhat buoyed yesterday with the news of Chinese Government intervention in their fragile stock markets and evidence of improved economic data from the U.S.A., which buoyed sentiment in general. The Oil and Sugar markets surged and the Cocoa, Coffee, Cotton, Copper, Orange Juice, Corn, Soybeans, Silver and Platinum markets had a day of buoyancy, while the Natural Gas and Gold markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 2.26% higher to see this Index registered at 391.59. The day starts with the firmer U.S. Dollar steady and selling at 1.543 to Sterling and 1.126 to the Euro, while North Sea Oil is showing modest buoyancy in early trade and is selling at 47.00 per barrel.

The London and New York markets started the day yesterday with positive buoyancy and maintained this track within an environment of subdued lacklustre trade, into and through the afternoon. This recovery which was being further inspired by the positive nature of the overall macro commodity index continued for the day and with both market joining most others, ending on a positive note. The London market continued to end the day with 86.7% of the gains of the day intact, while the New York market ended the day with 61.8% of the earlier gains of the day intact. The technical indicators and charts are not yet very positive for the coffee markets but one might think that following the past two days of recovery for the New York market and yesterday’s gains for the London market that producers might step back a little from selling into the markets and that the markets might be due for a steady start for early thin trade, against the prices set yesterday, as follows:

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

SEP 1607 + 26                                     SEP    121.05 + 2.35
NOV 1641 + 26                                   DEC   124.55 + 2.35
JAN 1657 + 28                                    MAR  128.00 + 2.40
MAR 1675 + 27                                  MAY  130.15 + 2.35
MAY 1696 + 26                                    JUL  132.25 + 2.35
JUL 1718 + 26                                      SEP  134.20 + 2.30
SEP 1738 + 24                                     DEC  136.90 + 2.20
NOV 1759 + 24                                   MAR 139.55 + 2.10
JAN 1780 + 24                                    MAY 141.20 + 2.00
MAR 1795 + 24                                    JUL 142.95 + 2.05