August 2, 2019 Coffee and Tea Market Report
The C market lost ground steadily this week though a late bounce saw prices only down 1.3% in the end. The week saw larger speculative funds adding new short positions once again after weeks of liquidation. The industry bought well with the market back down around the psychologically significant $1 level. There was little in the way of coffee news and much of the focus was on the “macro” picture. The Us Federal reserve cut interest rates for the first time in years and the threat of a trade war with China resurfaced with another round of threatened tariffs. This saw the US Dollar at two-year highs (basis the Dollar index) and pressured commodities in general. On the physical side of the market differentials remain firm as the C market has given back most of its recent gains and business has been light and sporadic. The Brazilian crop is nearing completion and the weather threat seems to have passed. At this point it seems that any damage from the frost was minimal. Focus will soon shift to the Central American harvest as the market will be keen to see the if there are effects from the prolonged low prices. The coming weeks should remain quiet.
Technically the market ends the week with a small positive bias from an indicator standpoint. A modest corrective bounce would seem likely short term. Chart patterns continue to point to a broad range over the coming months and this week’s action certainly did nothing to argue against that outlook. Overall would expect a few cents more to the downside short term will lead to another bounce within the prices we’ve seen over the last month. Would continue to view forward prices near a dollar to be good buying opportunities but otherwise would continue to maintain a neutral stance into any strength.
The market continues to be held down by mediocre quality teas. Overall demand was down but well-made teas were able to gain some ground this week. Smaller auction quantities (than 2018) in Kenya drove a little demand up slightly. This coupled with cool and dry weather created lively auctions this week. The March to June output in Kenya is now the lowest since 2015. In Sri Lanka, healthy demand could be seen for brighter, well-made teas. The crop intake is maintained in most areas but there are a few in decline. The total auction offering will most likely start to drop in August. Crops are good in Northern India and weather continues to be warm and wet. With orthodox teas and leafy types holding their own auction, Northern Indian farms are ensuring the world will have enough tea. Mount Tangkuban Perahu erupted in West Java last Friday. This active stratovolcano sits about 30km north of the city of Bandung. Although no tea plantations were directly affected, some reported volcanic ash falling. The eruption sent ash 200m into the sky past the peak of the mountain. Our thoughts go out to those effected by the disaster.
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.