Coffee Traders' Forum - A Discussion about Coffee Futures Trading

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Coffee Traders' Forum


October 12 2017

The traditionally conservative Brazilian Institute of Geography and Statistics IBGE are reported to have said that they have after their latest survey, reduced by 3.8% their assessment of the just completed new crop in Brazil, to a new figure of 45.9 million bags. This number related to 35.7 million bags of arabica coffees and 10.2 million bags of conilon robusta coffees, but while the news might have been seen to have been supportive for market sentiment, the markets apparently took into consideration that one might perhaps look to the conservative nature of the source of this report and took a reverse track in trade yesterday.

This makes it clear that the size of this year’s new crop in Brazil as against the pending larger new crops from Central America, Colombia and Vietnam and the large volumes of consumer market stocks is not a factor, but rather what shall be the prospects for the next 2018 Brazil crop. In this respect and following the rains at the end of September and for the first week of October, there are reports of massive flowerings over most of the main arabica coffee districts and while this week is dry and it is forecasted that most districts might remain so until the first half of next week, the meteorological forecast are for rain for the rest of the month.

The forecasts for these rains for the last two weeks of the month and their potential to influence the setting of what has been a good flowering towards next year’s arabica coffee crop, has had a negative influence upon market sentiment. Albeit that should these forecasted rains prove to be modest in nature, there would be a very sharp reversal in such sentiment.

Meanwhile and ahead of todays Nossa Senhora de Aparecida public holiday in Brazil which is likely to be extended into a long weekend for many within the industry, it is reported that internal market coffee trade has been lacklustre in nature. Likewise, with such price resistance in play, it has had its influence upon the asking prices on the part of the exporters and resulting in muted Brazil selling activity that shall presumably remain the case until the return to a full working week, post the weekend.

In Vietnam there continues to be rains over most of the main coffee districts and the much-awaited new crop harvest has yet to kick in, which leaves exporters with mostly only the much-depleted stocks from the past crop, to fulfil their October and November robusta coffee forward sale commitments. This scenario has however, already been factored in and for the present is not having any market effect upon market sentiment, but it the rains continue into the coming month, one might start to see short term supply concerns starting to have an influence within the London market.

The January 2018 to December 2017 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 38.49 usc/Lb., while this equates to 30.35% price discount for the London Robusta coffee market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 2,890 bags yesterday; to register these stocks at 1,845,505 bags. There was meanwhile a smaller in number 2,696 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 61,884 bags.

The commodity markets remained mixed yesterday, but with a weaker U.S. dollar in play there was buoyancy within many markets, to see the overall macro commodity index taking a modest positive track for the day. The Oil, Natural Gas, Sugar, Cocoa, Copper and Orange Juice markets had a day of buoyancy and the Wheat and Soybean markets were steady, while the Coffee, Cotton, Corn, Gold and Silver markets had a softer day’s trade and particularly so for the coffee markets that fell out of bed and were the feature for the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.1% higher, to see this Index registered at 412.98. The day starts with the U.S. Dollar near to steady and trading at 1.325 to Sterling and at 1.187 to the Euro, while North Sea Oil is near to steady and is selling at US$ 56.45 per barrel.

The London and New York markets started the day yesterday with modest losses, to see both markets continue to trade south of par into the early afternoon trade. As the afternoon progressed the New York market and with photographs of good flowerings in Brazil circulating came under pressure and started to trigger stop losses, which saw the market accentuate the losses and followed in a more subdued manner, by the London market. This remained the scenario for the rest of the day and while both markets experienced some modest bounces back from the lows, the markets continued towards a very soft close for the day.

The London market ended the day on a negative note and with 69.4% of the earlier losses of the day intact, while the New York market ended the day on a very negative 94.4% of the earlier losses of the day intact. This close does little to inspire confidence and paints something of a negative technical picture for the markets, but perhaps with the softer nature of the U.S. dollar and the absence of Brazilian selling activity that is due for the day, there might be some degree of corrective buying coming into play and the prospects for some modest buoyancy for early trade today, against the prices set yesterday.

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