April 27, 2018 Coffee and Tea Market Report
The C market posted its biggest one week gain of the year so far jumping 4% on mixed buying. Last week’s attempt (and failure) to break last year’s low has seen some spec shorts start to cover positions. Large funds bought about 11k lots of their massive record short back on the week and smaller specs bought early on as well. Industry buying moved up off the lows as well though not in an aggressive way yet. The buying was offset somewhat by a good round of origin selling out of Brazil. The Real weakened sharply early in the week and growers took advantage to raise capital for the harvest that is about to start. Physical business remains sporadic. News wise the most significant was the civil unrest in Nicaragua. While so far this has not had any direct impact on coffee the situation is being watched closely. With exports at their peak any supply disruptions could be significant. Colombian growers continue to look to the government for price support and are planning protests in the coming weeks. The low C market price is keeping differentials very firm but despite that many origins are seeing sale prices below the cost of production. The macro picture was a bit mixed. Commodities in general were mixed but soft commodities (coffee, cocoa, oj) saw some solid gains overall and perhaps more significantly a market up-tick in volatility. The Dollar pushed higher out of its recent range but the Real was more impactful for coffee.
Technically a familiar song once again. The market is bouncing off of a significant test of a major chart low but the bounce, so far, is not evidence of a major trend change. Technical indicators are positive on a short term basis and slowly turning higher on a longer term outlook. The structure of the bounce is inconclusive. A bare minimum correction off of the recent low projects prices just about another cent higher (from today’s close) to complete a short term pattern. This could see the market reverse lower quickly and take out the low seen a few weeks ago. That said the downtrend is long overdue for a more substantial reversal and with funds buying over the course of this week it could signal a change in their resolve. Their short covering would be fuel for a more substantial and potentially explosive rally. Longer term chart patterns continue to suggest a rally into the 150-160 range will be likely once the downtrend truly reverses. Will be watching closely for any confirmation of a major low being in place. In the meantime would not buy into strength but continue to scale into new lows.
This week, lower quality teas were a hot commodity in markets Argentina’s is coming to a close. The last harvests are entering production facilities. Weather is warm with scattered thunder storms. Kenyan demand evened out after last week’s drop. Prices were a bit easier but generally followed quality. Overall, the market is done about 6usc from average. Whether is wetter than usual and crop yields are increasing. The Sri Lankan auction was closed this week due to the Sinhala/Tamil New Year. New season North Indian Teas sold similar if not higher rates compared to last week. Unlike last week, demand was also up on old season teas. South Indian teas were mostly firm to dearer rates but still experienced solid demand. The North is warm and wet. The South is also beginning to warm up as well. Most producers are estimating that this season’s second flush will take place around the 2nd/3rd week of May.
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.