April 12, 2019 Coffee and Tea Market Report

Coffee Market

No change to the story for the C market this week as the decline accelerated. Prices hit a fresh fourteen-year low, dropping a little over 3% week to week. The lack of any real news is probably helping the decline, as there is little reason for anyone to second-guess the trend. Larger specs and funds were actually covering shorts into the early part of the week but added once again into yesterday’s sharp spike lower. That spike was sparked by macro pressure that saw many markets lower. Aside from funds being a large short in the market, there is little on the short-term horizon that presents a potential positive price outlook. Seasonally the market is entering a period of historic weakness (“sell in May and go away”) and the small downturn in production of the current cycle will not be felt until later this year. There continues to be little to talk about fundamentally. The Brazil crop is developing well by most reports. Colombian exports are slow for a variety of reasons. Many are hoping for the government to announce clear price support or subsidy measures and are holding back what coffee is available. In addition, protests are blocking access to the ports as producers continue to look for ways to reverse the price decline. So far though, the only impact has been to strengthen already firm differentials. Physical business overall remains very slow. The truth is the market produced more than needed during the last crop cycle and is dealing with the oversupply right now.

Technically the market is a bit oversold near term and could see a minor bounce. Overall though long term chart patterns continue to point to the mid 80s and there is no reason not to expect to see those levels. At this point, continue to see value in patiently averaging lower into continued weakness.

Tea Report

Kenyan tea markets saw a decrease in auction quantities this week. “Decrease” is a comparative term as the figure is still higher than this time in 2018. Malawi saw less demand this week but was still able to sell 75% of all offerings. The crop is improving which is a good sign as the main part of the season is wrapping up. Indian auctions saw increased demand for fresh crop teas. There was less demand for the old season teas. Even with the mix of demand, only 25% of offerings were unsold. Vietnam and China growing regions are seeing some welcome rain and are looking forward to the season starting a little earlier than in previous years. Argentina is looking to wrap up the season in the coming month. A little earlier than most would like, but there is a decrease in demand overall for tea from the region.

For further insight and analysis on current coffee and tea market data, take a look at the weekly report from S&D’s commodities team.