Sucfin-Morning Coffee Comment - January 4th

It was a wild day in NY yesterday but in London the trading day was mild. NY made a new high for the move at 131.35 before buying  impetus diminished and then sell stops were hit below 128.20 to reach 126.20. However, the market did recoup a good chunk of its losses to close at 128.60 and with Index re-balancing buying due to start today some stability should return. London stayed within Tuesday’s range closing slightly higher, another sideways day is expected with origin keeping a lid on potential rallies for now.
London is due unchanged to a tad lower on numbers.
 
EUR        1.2029
BRL         3.2381
GBP       1.3521
OIL         +0.84%
(Bloomberg)
 
Bloomberg
U.K. and U.S. stock-index futures rose as Asian equities joined Wall Street in hitting fresh record highs. Noted bear Jeremy Grantham said the market's next move could take stocks higher. Japanese shares rallied as markets re-opened and the yen weakened. Chinese stocks climbed after a gauge of services industries indicated a pick-up in growth. The dollar held steady, while Treasury yields edged up. WTI breached $62 a barrel. Copper bucked a downward trend in metals.
 
Coffee Bean Reserves in Japan Fall 3.8% M/m in Nov. 2017: Group
By Aya Takada (Bloomberg) -- 
Warehouse stockpiles fell to 186,078 tons at the end of Nov. 2017 from 193,451 tons as of Oct. 31, according to All Japan Coffee Association.
Details of inventories by major origins:
Brazil: 76,629 tons
Central America: 36,667 tons
Colombia: 27,731 tons
Indonesia: 5,772 tons
 
COFFEE/CEPEA: Higher production in 2018/19 may press down quotes in 2018
Cepea, January 3 – Favorable weather to the development of the 2018/19 crop in Brazil and the positive biennial cycle of coffee crops should result in an output similar or even larger than that in the 2016/17 season. In this scenario, domestic and international coffee prices may drop in 2018.
 
As for the 2017/18 crop, despite the lower supply in Brazil, due to the negative biennial cycle, coffee berry borer and smaller screen, availability should be higher in the main arabica and robusta producing countries. According to the USDA, production should increase slightly in Colombia, totaling 14.7 million arabica bags. In Vietnam, the weather favored the recovery of coffee crops, which should produce 29.9 million robusta bags.
 
On the other hand, global inventories should be smaller, since consumption should continue firm. Thus, at the end of the 2017/18 season, inventories are estimated at 29.26 million bags, according to the USDA, 13.9% lower than in the 2016/17 season. For Brazil, inventories at the end of the season are estimated at 2.56 million bags, 33.9% lower than in 2016/17. This scenario, in turn, may limit possible price drops along 2018.
 
Regarding the 2018/19 season in Brazil, although there are no official production estimates yet, the first speculations indicate that the crop should be good, and it may surpass the 51.3 million bags pointed by Conab for the 2016/17 season. Despite the positive biennial cycle, the rain volume has been large since October, allowing fruitlets settlement and the beginning of beans filling in some regions.
 
For arabica, despite the initial concerns with flowering events, which were damaged in September by drier weather, the return of rains in October favored crop development. This scenario renewed expectations for a good production in 2018/19 and encouraged growers to advance with crop management.
 
As for robusta, favorable weather in the last months of 2017, mainly in Espírito Santo, allowed coffee crops, which had been damaged by the drought in previous years, to recover. Rains in December increased water reservoirs as well as soil moisture, bringing relief to growers and ensuring fruitlets settlement. In Rondônia and Bahia, production in the 2018/19 crop is expected to increase as well. In these states, growers have not had problems with the weather and crops are at the beans filling stage.
 
Because of that, the amount of rains in January and February will be crucial for beans filling of both varieties. In December 2017, the World Meteorological Organization (WMO) indicated the formation of La Niña phenomenon, which should last until the end of the first quarter of 2018. Despite the possible consequences in Brazil, the WMO claims the phenomenon will be weak.