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PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(November 3, 1997) COFFEE: Coffee futures remained more or less in a sideways pattern last week, with December futures hovering around $1.50 per pound. Technically based rallies were cut short by origin activity, with anticipation of large-scale arrivals from Latin America also tending to keep a lid on rallies. Another potentially negative market influence was weather conditions in various origins. In Brazil, continued shower activity kept alive improved crop prospects, while in Colombia harvesting weather was characterized as being very good.
The December/March spread was relatively subdued last week; the December premium held to a fairly narrow range around the 10-cent level.
Trade reports from Asia indicated a slowing of Indonesian exports, in part because of a relatively firmer domestic market. At the same time, there was a reported easing of Vietnamese availability due in part to favorable weather conditions. Traders were anticipating Vietnamese shipments to expand significantly over the next four to six weeks.
Reports from Brazil indicate that the seasonal pick up in the sale of agricultural machinery is early this year (e.g., sales of drying equipment normally rise in December or January), reflecting farmer confidence of a large 1998/99 (May/April) coffee crop. Flowering in various parts of the country's coffee belt has been described as excellent. Early estimates of the 1998/99 outturn generally are in a range of 30-35 million bags.
Colombia's political climate and labor situation remain uneasy. Municipal elections recently took place, resulting in losses for the ruling party in several of the country's largest cities. A trucker organization (claiming the allegiance of 90% of the country's drivers) suspended a strike just ahead of the elections, and union leaders have yet to state unequivocally whether the strike has been officially called off. Anti-government forces launched an attack against various electrical facilities, causing a power shortage in Buenaventura, Colombia's principal coffee port, but overall traffic movements at the port were seen as “normal” by port officials last week.
Central American members of the Association of Coffee Producing Countries (whose membership accounts for about 75% of world coffee output) have requested a meeting of its technical group, which will occur in London on November 10. It is likely that the group will issue new production information for some member countries. As we have noted in recent commentaries, coffee officials in several Latin American producer countries believe that El Nino-related crop problems are more serious than the market recognizes, so the forthcoming meeting may also serve as a forum for exchanging 1997/98 export ideas.
U,S. roasted coffee imports in August were reported at 2.47 million kilos, the second highest monthly figure of the year. January-August imports (17 million kilos) were about 127% of the year-ago level, and were even more impressive relative to earlier years.
Improved production prospects for Brazil and Colombia as well as anticipation of rapidly growing 1997/98 Latin American coffee flows into the United States over the next few weeks are potentially negative factors, although are now partly discounted. We continue to lean to the downside.
Arthur Stevenson
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