Green Coffee Report

Posted: 2/26/2008

Green Coffee Market Report

February 25, 2008


Prepared by: S&D Coffee, Inc., Commodities Dept.

Fred Taylor, Tim Fallar, and Joe Doyle

“C” Market value: May 2008 = $1.6400

 

 

Market News

Subject: DJ Fund Doubles Holdings of World Coffee Supply To 31%

 

Commodity indices had a good month and a very good year in 2007, producing a return of 30%. This is also the reason why more investment funds are turning their attention to commodities.

SINGAPORE (Dow Jones)--Funds are holding a record 31% of the world's annual coffee supply, according to an analyst report from Sucden Coffee.
Hedge funds and index funds have amassed long positions on the London and New York futures exchanges amounting to around 2.4 million metric tons of coffee, said the report, referring to the latest Commitment of Traders report published by the U.S. Commodity Futures Trading Commission.
Hedge funds and index funds are long 2.06 million tons of Arabica and 375,000 tons of Robusta in all. Total global production of coffee is pegged at 7.8 million tons. According to traders, funds held around 15% of world coffee supply in 2007 - a figure which had grown from just 5% three years earlier.

 

Standard & Poor’s said that it is expecting an increase of 20% on their 80 to 85 billion dollar GSCI index, of which coffee represents 0.65%. Here are some interesting numbers:

Out of 85 billion dollars the GSCI alone would have around 9,000 lots long, and increment of 17 billion dollars would add another 1,800 lots at today's prices.
It is all about the same old business,….. funds, funds and more funds...

As an inflation hedge, speculators continue their insatiable pursuit for all soft commodities, creating a self-fulfilling prophecy by boosting core food prices. Coffee is the latest foodstuff to perk up, with London Robusta futures soaring to a near-11-year high this month, as much as 41% above the December low. London's rally is buoying New York Arabica futures, which have also made multi-layer highs. In fact, London brokerage house Sucden, estimates that speculators now hold nearly a third of the world's total annual coffee supply.

 

This is filtering down to your cup of Joe. In mid-February, some large roasters hiked prices, including Kraft's Maxwell House, Procter & Gamble's Folgers, Massimo Zanetti's Chock Full O'Nuts, Chase & Sanborn, Hill Brothers and MJB ground coffee.

Instant coffee, which often includes Robusta, climbed roughly 6%.

Furthermore, growers and dealers in Vietnam, the world's largest producer and exporter of Robusta coffee, are hoarding supplies to create their own inflation hedge. "Vietnamese farmers are understandably relishing this poker game," write Fortis Bank analysts. Better returns in recent seasons put these farmers in a stronger position financially to warehouse stocks in hopes of higher prices later. Robusta prices are three to four times higher than production costs in Vietnam. On Friday, Liffe May Robusta coffee settled at $2,502 a ton, up 6.1% on the week. Many roasters have been caught off-guard by the sharp rise. Fortis Commodities Report estimates that most now have eight weeks of their needs covered compared with 12 to 14 weeks typically.

                                                              

Bean prices will be well-supported, long-term, as production hasn't kept up with consumption in recent years, says Dan Vaught, a softs analyst with A.G. Edwards. The U.S. Department of Agriculture forecasts 2007-'08 season inventories at 18.3 million bags, each weighing 60 kilograms (132 pounds), That's the lowest figure since the agency started keeping records in 1960-61. The greatest tightness is for Robusta.

Coffee growers can't respond to prices quickly because it takes several seasons for a coffee tree to start producing. There are forecasts of a potential Robusta deficit for consecutive years, due to strong consumption growth projections. In addition to a rising global population and thus a rise in the number of coffee drinkers, consumers in Asia, Eastern Europe and Middle East want more western products, such as instant coffee. And in the U.S. and Europe, cold coffee drinks, which often use Robusta, are becoming more popular. One has to believe that at some stage, there needs to be a price correction, but given the supply situation that might not be seen for quite a while.

 

Current technicals:

For Monday, the pivot price for May is 161.65 with pivot resistance seen from 164.15 to 165.95 then 168.45 and 170.25. Below the Mkt, pivot support can be found from 159.85 to 157.35 then 155.55 and 153.05.

                                                             
Producing Country Report

BRAZIL:

The Brazil coffee is being sold as the market demands. With no supply issues and a higher market value, Brazil’s currency issue, as it relates to the U.S. dollar exchange rate is somewhat muted. We have seen a slight improvement in differentials out if Brazil, but with no apparent reason to sell there hasn’t been a breakdown one would have expected. For the exporter, Coffee remains a good hedge against the dollar, therefore, at this time there is no real incentive to sell.

 

 LATAM:

In general there is a steady flow of fresh harvested coffee being transported to the mills. Supplies are expected to be to the higher side of earlier crop yield forecasts, but not up to records levels.

 

Other Differentials:

Differentials have not moved and they are not overly attractive, nor are they over priced, they are fairly reasonable from all areas. We would expect that the higher prices would result in improved differentials, but there is an observation that with the weakness continuing in the US dollar that origin holding inventory is a good hedge.

 

COLOMBIA:

Colombian coffee offerings are becoming a bit tighter and the higher market has not brought the anticipated selling. We are able to acquire offers from Colombia but the differentials are firm and the shipping positions are against the deferred month which is a premium to the nearer shipping month.

For example if we were to ask for pricing for July arrivals the diff. would be offered against the September futures.

 

 

ROBUSTA MARKET:

The Robusta market continues to be tight and sellers are well disciplined to not offer coffee outright, a strategy to preserve any perception of coffee being solicited as a sales offering. Coffee is in decent supply but not in abundant availability.

  

EXCHANGE CERTIFIED COFFEE:

 

Not much has changed here. New lots of coffee continue to flow to the exchange locations in the U.S. and Europe. Also, the exodus of certs from the U.S to Europe continues, as the demand from decafe. Processor’s remains in place, as well as, from other larger commercial roasters in the European Mkt..

 

Certified stocks, as of Feb25th stood at 4.335ml. bags, 2.572 ml. bags in Europe and.1.763 Ml. bags in U.S. ports.

Pending grading were; 35,000 bags    

 

COMMENT:

 

The outlook for higher price considerations remains in-tact in this Mkt, however, a near term consolidation is more likely. A close above 1.6650 will confirm the next rally, where prices are fully expected to test 1.7000 and beyond. Below the Mkt, 1.6125 is the primary support zone with a potential of seeing the 38.2%  Fib. Retracement at 1.5345.    


Tea Market Report February 2008

   

World tea prices recently hit the highest levels in years as political instability in Kenya halted most economic activity.


The violence in Kenya, underscores the risks in commodity producing countries. Kenya has long been thought of as one of the most stable African nations so the post election violence came as a surprise and forced buyers to look for replacement tea.

 

Argentina- Production is in high gear and some areas are reporting leaf shortfalls due to low nighttime humidity levels; however the season is expected to be normal in terms of production and quality. European buyers are participating for the higher quality types to make up for a shortfall in world tea stocks due to violence in Kenya and high prices elsewhere.

 

China- There is no tea currently being produced but the big story is the recent blizzard that paralyzed much of the country just as the Chinese New Year was beginning. The question is if the cold weather caused damage to the tea bushes.

Inflation, a weakening dollar, a stronger Yuan, are all driving up the price of raw materials to the point that producers are losing money on forward dollar dominated contracts. Some producers are considering only offering three month forward contracts for the coming tea season which begins in April.

 

Vietnam- There is no tea currently being produced and little available as stocks were short last season due to dry weather.

 

Kenya- Tea production has resumed and transportation is slowly returning to normal. An uneasy peace is being brokered but in the end people need to earn a living so life goes on.

 

Sri Lanka (Ceylon) - Prices have hit near record levels supported by major Russian buying and the beginning of the Dimbula quality season.  Violence and civil strife remain problems and are beginning to spread to the capital Colombo.

 

Indonesia – Prices have peaked as packers look to Indonesia to replace tea from Kenya and Sri Lanka. As Kenyan teas return to the market prices should subside