April 5, 2019 Coffee and Tea Market Report
Despite some midweek signs of hope, the C market once again progressed slowly lower this week. Prices touched a fourteen-year low early in the week on continued spec and fund selling. The following session saw prices jump sharply (by recent standards) as shorts covered some volume when a new low was not seen. Prices managed almost a six-cent gain over two trading sessions but the momentum waned and much of these gains were given back today. Overall prices wound up about 1% lower week to week. Today also marked the beginning of the Index fund roll out of the nearby May contract as it moves toward notice period in two weeks. As a general rule as the market nears a delivery period in a downward trend it is very difficult to stage any notable rally. A weaker Brazilian Real helped lend some pressure as well. Producers continue to suffer increasingly with the low market levels. Protests in Colombia continued to block access to ports this week, though at this point coffee flow is relatively low. Differentials remain extremely firm but this has not seen the C market react at all. The low prices have the Brazilian government considering revisiting an “options program” used some years ago. This program allows producers to sell their coffee to the government at a fixed price higher than the current market value. The government then holds the coffee, presumably to sell it to the general market once prices rise. A similar program was used in 2103 with some success. Brazil announced today that prices had fallen below their cost of production, something Central America and Colombia have been dealing with for some time. Otherwise, there remains little to talk about. Physical business remains slow.
Technically the market showed some positive signs midweek but the late weakness tempers that outlook. There remains some short-term potential to see a push toward $1. That said there is no indication of the market trying to establish a bottom at this point and seeing the nearby contract trade toward 85 c/lb. is still suggested by the longer-term chart. Would continue to view new lows as good value but patience is key. It would take a substantial move higher at this point to suggest a real turn had occurred.
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.