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Coffee Market Report
April 06 2018

The weather reports from Brazil see the main coffee districts of the country mostly in receipt of good rains for the start of this month, which is historically the tail off for the summer rain season and with overall rainfall modest in comparison to the summer season. These rains contributing to generally good ground water retention levels ahead of the mostly dry winter harvest season, which shall assist the trees to carry the maturing new crop and ahead of the forecast for dry weather for the coming weeks.

Meanwhile the focus in Brazil is upon the new crop and with the new crop conilon robusta coffees expected to flow in good volumes into the internal market industries in the coming month, but with a surplus conilon crop due this year, the prospects for a resurgence of conilon robust coffee exports due for the second half of the year. A factor that shall possibly be negative for the medium-term prospects for the London robusta coffee market, where many of these coffees might be tendered to the certified robusta coffee stocks.

The new robusta coffee fly crop is in progress in Indonesia but with a strong domestic roasting industry demand for these coffees, they are selling at good premiums to the reference prices of the London market and for the present remain uncompetitive within the consumer markets to the alternative supply from Vietnam and Uganda. With this scenario expected to remain for the next few months and until the internal market demand is well covered and well into the second half of this year, by when the main crop shall start to come into play.

In the meantime, and with the soft nature of the reference prices of the London market, there are reports of price resistance within the internal market in Vietnam and somewhat lacklustre trade for the present. But with the countries exporters seemingly being sufficiently covered with new crop stocks to fulfil their forward contract commitments, while the Vietnam Coffee and Cocoa Association have forecast that the country shall export approximately 25 million bags of mostly robusta coffees during the present October 2017 to September 2018 coffee year.

The 121st. Session of the Council of the International Coffee Organisation is due to be held over Monday to Friday next week in Mexico City, which is a meeting that usually aside from general administrative matters, addresses global coffee agronomy and threats to coffee farmers etc. However, the Colombians have already announced that they wish to bring to the table their concerns over the soft and for many producer’s loss-making prices for coffee farmers, with thoughts of producer retention schemes to reduce supply and buoy prices. One might speculate though that most producers do not have the financial muscle to finance these retention coffees and as such schemes historically have failed, that there shall be no viable price support program coming out of these meetings.

There shall though be many voices of concern over the prevailing soft coffee prices and their negative impact for coffee farmers globally and already in Central America, there is speculation that many cash strapped farmers shall be forced to cut back on fertilisers and disease combating chemical inputs for their next crop. This somewhat threatening for this major fine washed arabica coffee producer bloc and the next October 2018 to March 2019 harvest, which many speculate might be between 2 million and 2.5 million bags lower than the new crop that is presently being marketed.

But for the present and with the expectations of a significantly larger new Brazil arabica coffee crop and supply due to come into play for the second half of the year, these fears of longer term declining Mexican and Central America arabica coffees supply are not having any impact upon the presently bearish speculative sector of the coffee markets. It might however and if there is more reality coming to the fore on these concerns, become a supportive factor for the New York market in the second half of the year.

The July 2018 to July 2018 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 39.35 usc/Lb., while this equates to 32.91% 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 3,304 bags yesterday; to register these stocks at 1,948,766 bags. There were meanwhile a larger in number 6,760 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 27,497 bags.

The commodity markets and despite some further muscle being shown by the U.S. dollar were mostly showing a degree of buoyancy yesterday, to see the overall macro commodity index on an upside track for the day. The Oil, Sugar, Cocoa, New York arabica Coffee, Cotton, Copper, Wheat, Corn, Soybean and Silver markets had a day of buoyancy and the London robusta Coffee market was near to steady for the day, while the Natural Gas, Orange Juice and Gold markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.75% higher; to see this index registered at 421.74. The day starts with the U.S. Dollar near to steady and trading at 1.399 to Sterling, at 1.224 to the Euro and with the dollar buying 3.345 Brazilian Real, while North Sea Oil is tending softer and is selling at US$ 66.20 per barrel.

The London market started the day yesterday of a steady note and trading either side of par, while the New York market started the day with immediate buoyancy and with the markets maintaining this stance, into the early afternoon trade. As the afternoon progressed the London market continued to trade erratically either side of par and with the New York market maintaining its positive stance for the day.

The London market ended the day on a near to steady 33.3% of the earlier modest losses of the day intact, while the New York market ended the day on a positive note and with 46.4% of the earlier gains of the day intact. This close contributes little in terms of direction and is likely to inspire only a hesitantly steady start for early trade today against the prices set yesterday.