Thursday, July 13, 2006


Royal Coffee Update 7/12/06

As you know most of this year’s Central, Mexican and African crop has been sold at origin. Royal now has most of the coffees we are going to rely on for delivery August-January, either in our warehouse or afloat.
The C market today is at .9995 basis Sept. It dropped to 97.60 briefly today before bouncing back and closing virtually un-changed. It seems to me this kind of trading is typical of the summer boredom in the trading ring.
I think the market will trade .93-1.05 for the next few weeks. The only factor on the immediate horizon that would make the market go above the higher end of that range is of course a freak cold spell in Brazil. Barring that, with Brazil and Vietnam having big crops, and the certified stocks holding above 3 million bags, it seems the market supply shortages which many predicted have not materialized.

So what, going forward, is the market going to do? Of course I do not know, but here is the way I see it going:

All the bearish news is out on the table….there really is nothing I can think of that would be a bigger negative story than what we already know.. We have known about this year’s large aggregate crop size for quite some time and that info has been generally digested.
August is traditionally a slow month. Europe shuts down and the market seems to be in a suspended mode.
But around Labor Day origin starts seriously marketing next year’s crop and roasters have to cover through the winter. Next year the crop in Brazil will be smaller. Speculation will begin as to how much smaller, and that will be the feature story for the market. Spring Brazilian rains will be closely watched and cries of drought will be made if possible.

So it seems to me the next big story would tend to be of a bullish nature.
I think we have a good opportunity to fix hedged coffee now against Sept, and maybe Dec at around, and slightly below 1.00. ( also march at a 1.00 if it were to drop 7 cents more) Last year the market low was around 93 cents, I do not see a good reason, heading to a smaller crop next year, why we would go lower than that level for any great length of time.

Bottom line: I think there is a good probability that we are near a low. Buying coffee from Central America, Mexico and Africa for the balance of this year both from a quality, price and selection standpoint will not get a whole lot better.

Here are some coffees which we have now. In order to sell this coffee, we would be happy to provide future invoice dates up until Dec 1.

Costa Rican—many options, some very good to excellent.
Ethiopian Yirgacheffe, Sidamo and Harrar—a lot from which to choose, nothing left at origin.
Guats—good selection of HHT and Antigua…
Mexican—good selection of Pluma and a lot of Finca San Carlos.
Nic—a fair amount of organic coffee, but we project running out well in advance of the new crop
Panama—we think we have some very good coffees here. Panamaria and Maunier, we would love to give you a good deal on some of these.
El Salvador—I have fired the buyer responsible for over-buying these. But I also had to re-hire him this morning…I need to give some of these away.
Uganda Bugisu— sweet dark roasters still available.
Kenya— we have some real good small lots

Organics in general---Timor is a potential problem, if that origin dries up, it will put pressure on our other types, but at the moment we have a lot of Sumatra.

Best regards from Emeryville---R. Fulmer

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