Coffee Traders' Forum - A Discussion about Coffee Futures Trading

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Coffee Market Report
January 12 2018

The Brazilian Institute of Geography and Statistics IBGE has come to the fore with a forecast for a 14.9% increase for the Brazil coffee crop for this year, which they foresee to be around 53.2 million bags. This agency is however traditionally conservative in its forecasts and usually around 8% to 10% below reality, as was their 2017 crop figure of 46.3 million bags significantly lower than most other reliable reports. Thus, if one is to apply the discount figure of say 9% below reality to the forecast, many would see this forecast to be indicating a much larger 2018 crop of closer to 58 million bags and therefore, a report that is unlikely to do much to change the prevailing negative sentiment.

There are now just under five weeks of trade to go, before the Vietnam industry starts to celebrate the week-long Tet New Year holidays and starting with their New Year’s Eve celebrations on Thursday 15th. February, but there has so far, been no great excitement nor selling aggression ahead of this holiday. Historically farmers have looked to raise cash to both finance the costs of their recent harvest and to finance the forthcoming costs of the Tet holiday and multi-day celebrations, but such sales which have been muted by the prevailing softer prices, have yet to pick up in volume. The possible prospects of this increase in selling activity and along with outstanding price fixations for earlier sales, likely to create something of a price ceiling over the London market.

While in terms of the New York market and despite the tighter supply of arabica coffees from Brazil for the present, the evidence of more than adequate consumer market stocks and along with many reports that forecast adequate coffee supply for the present October 2017 to September 2018 coffee year and with expectations of a larger new Brazil crop to soon come to the fore, speculative sentiment remains largely bearish in nature. Perhaps further supported by the forecast that with the new crop in progress on the part of the coffee authorities in Honduras, that they now foresee this new and mostly fine washed arabica coffee crop to be close to 8.28 million bags.

The recent years rapid growth in coffee production in Honduras is quite remarkable and perhaps to put it into perspective, one can look to the fact that this country is marginally 5.06% smaller in land mass than one of the smaller African producers Malawi, while Honduras is seemingly now producing almost as much arabica coffee, as the entire continent of Africa. One might thus comment that not only African arabica coffee producers but many other arabica coffee producers globally, might be able to learn a lot from the actions that have been taken in Honduras to so significantly and successfully increase coffee farm yields.

Albeit that for the present, the overall problem for the global coffee producers, is that there is seemingly already sufficient production to cater for global coffee supply. But it is perhaps not sufficient production to build up sufficient reserve stocks of coffee, to counter steadily growing global consumption and any possible climatic problems that shall most likely in the coming years, come to the fore for one or the other of the main coffee producer countries or coffee producer bloc’s.

The New York market shall be closed on Monday for the Martin Luther King Jnr. Holiday, which sees the arabica coffee market due for another long weekend. Trade is however mostly lacklustre at present for this market and one would think, it shall have much influence upon the activities within this market today. Albeit that there might be some speculative profit taking short covering buying coming into play, in anticipation of news of an aggressive increase in the net short sold position of this sector of the market, post the long weekend.

The March 2018 to March 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 44.46 usc/Lb., while this equates to 36.21% 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 7,026 bags yesterday; to register these stocks at 2,005,570 bags. There was meanwhile a smaller in number 2,833 bags decline to the number of bags pending grading for this exchange; to register these pending grading stocks at 24,378 bags.

The commodity markets were mixed in trade yesterday, but with the overall macro commodity index managing to maintain some degree of modest buoyancy for the day. The Oil, Natural Gas, Cotton and Gold markets had a day of buoyancy and the London robusta Coffee market was steady for the day, while the Sugar, Cocoa, Copper, Orange Juice, Wheat, Corn, Soybean and Silver markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.04% higher; to register this index at 423.65. The day starts with the U.S. Dollar marginally softer and trading at 1.354 to Sterling, at 1.205 to the Euro and 3.215 to the Brazilian Real, while North Sea Oil is steady and is selling at US$ 69.80 per barrel.

The London and New York markets started the day yesterday marginally south of par, but with both markets soon coming under pressure, to see both markets taking a softer track into the early afternoon trade. As the afternoon progressed both markets lost some more weight prior to a later in the day bounce back from the lows, but while the London market managed to hold on to its recovery, the New York market once again faltered and moved back into negative territory.

The London market ended the day on a steady note and with 25% of the earlier gains of the day intact, while the New York market ended the day on a negative note and with 63.9% of the earlier losses of the day intact. This mixed close really provides little in the way of direction, but one might think that with the softer nature of the U.S. dollar and some caution ahead of a long weekend due for the New York market, that the markets might be due for a steady start for early trade today, against the prices set yesterday.