August 31, 2018 Coffee and Tea Market Report
The C market ended the summer with modest losses both on the day and week to week. At this point, it appears that last week’s bounce was indeed a “dead cat”. Those gains were retraced rather easily and while the market did not make a new low, it did post its lowest close in twelve years. This is significant because many technical indicators and signals are generated off closing prices. Obviously, the tone in the market is still negative. Funds continue to hold their record short position. Political turmoil continues to see the US Dollar strong and producing country currencies weak. The Brazilian Real saw a three-year low and stress on their central bank. That weakness could continue though presidential elections. The weak Real keeps Brazilian producers selling into the lower C market. The strong US dollar is keeping modest pressure on commodities in general. Differentials remain quite firm and physical business has been sporadic. The low C market is stressing producers to some extent. This week saw Colombians government and the National Coffee Federation (FNC) announce the creation of a fund to help coffee growers deal with the low prices. So far, they have not specified details on how the fund will assist but the low prices are well below cost of production in all origins and this could start to stress the growing cycles next year as investment in crop care lessens. This would be the long hard road to higher prices, would expect funds force a rally before that happens.
Technically the market remains negative overall but the short-term picture is a bit mixed. Last week’s short-lived bounce generated some weak buy signals but it was not enough for the market to find any real footing. At this point chart patterns are pointing to new lows and basis the monthly chart a look at 90 cents is not out of the question. Still would try and stay focused on the bigger picture and that these low prices continue to represent historical value.
This week’s tea market were mixed. Argentinian factories are closed for their annual maintenance programs. Set-up for the next season is approaching. Kenya experienced slightly increased demand. Dust types returned to normal after last week is high. PF1s sold at increased pricing. Weather is generally cool with sporadic showers. Crops are still a bit low. Sri Lankan demand remained solid. Eastern BOPFs were this week’s winners with gains up to 20usc. Upper end high growns lost by similar margins. There are heavy showers and crops are down. North India continued good demand. Prices were roughly the same as last week with limited gains being made by the brightest types. There are heavy showers over the region. South India shoed improved demand. CTC types gained 2-6usc, which was balanced out by equal, loses from orthodox types. Torrential rains cover most of the area and have caused flooding in low-lying areas- Cochin auction was actually canceled due to flooding.
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.