April 18, 2019 Coffee and Tea Market Report
The C market saw a tumultuous, holiday shortened, week unfold. In the end, prices settled almost exactly unchanged week to week but saw sharp declines yesterday followed a sharp rally today. Fresh fourteen year lows were seen as reluctant producer selling was forced into the market ahead of first notice day for the nearby May contract. Good industry buying was seen on the way down though and once the selling pressure waned a quick bounce unfolded today on a combination of spec short covering and bottom picking. Short covering ahead of the long weekend after a new low is not terribly surprising especially when that low was made on forced origin selling. Lack of upward momentum on Monday though could see those shorts added back on quickly. There remains little news in the market and as mentioned, the focus this week was on position squaring ahead of delivery period. Large funds remain short and likely added a little on the week overall. Physical business remains hand to mouth amid continuing firm differentials. In the background, a strong US Dollar helped apply some pressure on the week as well.
Technically the market is a bit oversold but not enough to suggest of a major bounce is pending. Still the trend is extremely mature and prices did come close to a long-term measured objective at 8485. While there is, no evidence of a low yet would be on the watch for any signals of a turn. Even a minor correction within the long-term trend could see prices rally twenty cents or more. At this point would prefer to stand aside and let the next few sessions play out. It is doubtful prices would move substantially lower from current levels but they could certainly remain suppressed for a prolonged period. It may be time to sit on current positions and let the market tell the tale on the next major move over the coming weeks.
Dry weather is prevailing in many tea-growing regions. There was still strong demand in the Kenyan tea market this week with around 150,000 packages up for auction. The rains have still not arrived and rumors of drought have already begun. The longer it takes rain to arrive then there is more time the bushes need to recover. In Malawi, the weather is hot but there are some light and useful rains present. Good demand was seen this week as the Malawi auction only had 28% of all offers unsold. New Year’s celebration continue in Sri Lanka so business is the last thing on their minds. Auctions will start up again next week. Weather is warming up in parts of India but there is still the absence of rain as the main cropping season is about to start. 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. We hope that everyone has a safe and happy holiday weekend!
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.