wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(November 10, 1997) COFFEE: After falling to new lows early last week, futures moved sharply higher Monday on reports of transportation strikes in Latin America. The upmove also was fueled by: (1) rumors that the next U.S. stocks figure would be down sharply versus the previous month, (2) a pick up in roaster purchases; and (3) technical buying.
The unsettled labor situation in Colombia continues to be a market factor. In October, a trucker organization (claiming to have the support of about 90% of the country's truckers) declared a strike, which it then suspended just ahead of the October 26 municipal elections. Last week's news of more strike activity (coming during the Colombia harvest) has bullish price implications, and will be watched closely by market participants.
The president of Mexico's National Coffee Producers Union last week stated that the country's 1997/98 production was forecast to remain at the year-ago level of 5.1 million bags, rejecting as “unrealistic” a recent governmental forecast of 5.6 million bags. Given Mexico's importance as a coffee supplier to the U.S. market, a production drop of 500,000 bags (as implied by the difference between the two forecasts) would be bullish for New York futures. This forecast also is likely to ignite concern regarding the production prospects for some Central American origins.
Trade sources in Espirito Santo (which accounts for roughly two-thirds of Brazil's robusta production) noted last week that the states 1998/99 (May-April) output could be 30%-50% below earlier expectations because of recent dry conditions. If so, it would be potentially more constructive for the London market than for New York futures.
Imports for January-August were reported at 11.9 million kilos, about 20% below the year-ago level.
Although the market's price action has become more two-sided, we are not prepared to say that the downmove has ended. Near-term price losses are likely to be limited by market concerns over falling U.S. stocks and possible downward production revisions for Mexico and Brazil.
Arthur Stevenson
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