August 16, 2019 Coffee and Tea Market Report
The C market continued lower this week, losing about 4.5% and trading to three-month lows. The pressure can be attributed somewhat to liquidation of the spot month ahead of first notice day next week as reluctant producers lock in last minute pricing. The decline was also part of a macro “risk off” after all commodities saw pressure on the week. A lot of buzz on the week about a potential US recession saw a lot of volatility on the Dow Jones and a stronger overall US Dollar. An “inverted” yield curve (short term interest rates higher than long term) spurred the move. This is seen as one of the early warning signs of a recession and after the recent rate cut a bit of concern flowed through the markets. The Dow recovered much of the early losses by the end of the week though some continued volatility near term would seem likely. On the coffee side of the news there is little going on. The market is in a historically quiet time of year. There is little physical activity as differentials remain strong. The Brazilian harvest is about complete at this point and Central American harvests won’t start for a few months so there is little in the way of fundamental news.
Technically the market is negative short term and a bit oversold. It would seem a few more days pf pressure is ahead given the weak close and the pending notice period, but overall chart patterns continue to suggest that the year’s lows should represent the bottom end of a broad range. Would expect to find better support toward the 90 cents level and overall would expect a bounce within the recent range over the coming weeks. Bigger picture the above-mentioned range (would estimate 85-125) is still expected to hold prices at least through the end of the year. At this point would continue to view levels around a dollar as good value to extend coverage. Would be patient buyers into those prices overall.
Auction prices were stronger across tea markets this week. With better quality and lower auction volumes, the demand was stronger as well. In Mombasa, 85% of the 128,000 packages were sold. A lower auction quantity than last week but this probably helped to firm prices. Prices held firm for many well-made teas with the highest coming out to $6.06/kg ($13.36/lbs.) and overall prices jumped by 9usc. Only 16% of offerings were unsold in Indonesia this week. This marks the best show in many weeks for the region. Forecasts for South America show an on-time start to the season in Mid- October. However, producers are cautiously optimistic. Northern India had a slight reduction in demand as the outlook for better teas is on the horizon with rain and warm weather in the forecast. Heavy flooding and several landslides that claimed the lives of hundreds and forced others to leave their homes have affected South India.
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.