9th. January, 2014.

The Chaparrastique volcano eruption in El Salvador has predictably done little damage to the new crop that is presently in harvest, but this crop due to damage caused by Roya or Leaf Rust is nevertheless now forecasted by the countries National Coffee Council to be 456,500 bags or 35.1% lower than the past crop.   This severe dip in production is apparently not as much related to Roya damaged trees, but to the more radical reaction to the problem on the part of the commercial farming sector of the country’s coffee industry that account for approximately 70% of the coffee farms, who have taken the route of either stumping their trees or replanting coffee fields with new trees, to more easily counter the diseased fields.  

This is however a rather dramatic dip in the new crop that has been forecasted by the National Coffee Council, as to date the majority of the private industry forecasts had been looking to an approximately 300,000 bags or 23% dip in the size of the new crop for El Salvador.  Only time shall tell, but in the meantime with production of fine washed arabica coffees surging in Colombia and with an approximate 6% increase forecasted for the New Crop in Honduras, this dip in production from El Salvador which is anyhow a relatively small regional producer, is not proving to be a concern for the consumer markets.

The first week of the month of January has proven to be relatively dry for the majority of the main coffee districts in Brazil, but with good ground water retention levels that have come with normal rainfall for the preceding three months, there are no concerns being voiced for the development of the new crop.  There are however conflicting reports from within the trade and industry in terms of this new crop as following the recent forecast from Volcafe that they have downgraded this crop from their initial 60 million bags forecast to 51 million bags, there are other private trade and industry forecasts still voicing a figure of close to 60 million bags.  Thus the very important to market sentiment Brazil crop factor remains a mystery, which shall only become clear by the third quarter of this year and is in the meantime a factor that shall undoubtedly bring forth volatility for the markets.

Meanwhile with the funds stepping in to buy into the New York market, this market has moved into a new trading range, but while the late in the previous year charts were pointing to a step up for this market, it is difficult to adjudge the appetite of the funds and it shall take a week or two to see if the new trading range can hold.    Especially so as there remain large volumes of new crop coffees from Mexico, Central America and Colombia and 2013 crop Brazil arabica stocks hanging over the market, which once the market steadies might start coming to the market and with the negative pressures of price fixation hedge selling.   But one might speculate that with price or premium differential price resistance on the part of the consumer roasters resulting in hand to mouth buying from many origins, that underlying roaster price fixation buying might well come to the fore to buoy the New York market against any negative correction and that the new trading range might well have a degree of substance.  Albeit that in reality and with unforeseen negative weather conditions for Brazil aside, that there is no sign of tight arabica coffee supply foreseen for this year. 

The Certified washed Arabica coffee stocks held against the New York market were seen reported to be unchanged yesterday, to register these stocks at 2,701,803 bags.   There was meanwhile a very modest 640 bags decrease to the number of bags pending grading for the exchange; to register these pending grading stocks at 9,263 bags.

The commodity markets encountered little in the way of striking news yesterday and focus was more related towards the influences of New Year repositioning of investment on the part of the longer term Index Funds, between selected markets.   There was however something of a negative influence coming forth with speculation that with upbeat economic figures coming forth from the U.S.A. that it might inspire a rate hike and some muscle for the dollar, which make market prices relatively more expensive in terms of the other currencies.   The New York arabica Coffee, Cocoa and Soybean markets nevertheless had a day of buoyancy, while the Oil, Natural Gas, Sugar, Cotton, Copper, Orange Juice, Wheat, Corn, Gold, Silver, Platinum and Palladium markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.62% lower, to see the Index registered at 507.43.  The day starts with a steady U.S. dollar trading at 1.645 to Sterling and 1.358 to the Euro, while Brent Crude is showing a degree of buoyancy in early trade and is selling at $ 107.50 per barrel.

The New York market started the day with modest buoyancy and followed by a dip into negative territory for the London market.  The New York market and with producer selling pressure side-lined continued to attract fund buying support and roaster buy stops coming into play, to build upon its gains into the afternoons trade, while the London market remained under pressure and encountered erratic trade within a lower range for the afternoon.   The London market continued to end the day with a late in the day recovery to close only modestly lower and having recovered 87% of the earlier losses of the day, while the New York market conversely ended the day on a very positive note and with 85.9% of the gains of the day intact and with the arbitrage having broadened to 43.24 usc/Lb., which equates to an attractive to the industry 35.76% price discount for the London robusta coffee market.    This close and with the London market having recovered late in the day might be seen to be somewhat positive for the markets and one might expect to see a follow through steady stance being taken for early trade today against the prices set yesterday, as follows:

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

                                                

 JAN      1725 – 3                                                             

 MAR      1712 – 3                MAR     120.90 + 3.65

MAY      1676 – 4                MAY     123.00 + 3.65

JUL      1648 – 18               JUL     125.20 + 3.75

SEP      1644 – 23               SEP     127.05 + 3.70

NOV      1642 – 28               DEC     129.65 + 3.60

JAN      1644 – 26               MAR     132.25 + 3.55

MAR      1646 – 29               MAY     133.75 + 3.50

 MAY      1651 – 29               JUL     135.20 + 3.40

JUL      1646 – 29               SEP     136.70 + 3.30