December 21, 2018 Coffee and Tea Market Report
The C market posted its seventh consecutive week lower with prices losing 2.5% on the week. The story was a familiar one. Spec and fund selling easily pushed through light industry buying. There remains little news. The market is well supplied at the moment with the record Brazil and Vietnam crops filling up depleted reserve stocks. Differentials remain quite firm with the low market levels so physical business is sparse. Overall, the volume on the week was light as focus shifted to the holidays. The persistent low prices continue to weight on producers and the industry is starting to look for ways to support them and maintain the supply chain. With record supply, there is little incentive to drive the market substantially higher; it will be interesting to see the ideas presented. Outside of coffee, the macro picture is sending mixed signals. The Dollar is choppy but remains firm overall. The index fund annual rebalancing will happen over the coming weeks. There is still not a clear consensus on what that will mean for coffee. Overall, they are due to lower their percentage of dollars invested in coffee but due to the low prices, this may actually still translate into buying for the market. The impact in either case should be minimal, as the lack of clear direction has preempted the unusual spec position building in advance of the rebalancing. Other markets, in general, were under pressure this week as well.
Technically the market is a bit mixed near term but negative overall. Prices did test the recent lows this week but failed to break through. This might be somewhat encouraging for another bounce but honestly the weak close really leaves the door open for further losses short term. Overall, continue to view these levels as good value historically. Current activity though suggests there is no pressure to buy aggressively. At this point would look to scale buy patiently into new lows until the market shows some signs of a change.
Seasonal norms can be seen around the tea world this week. East Africa is seeing short rains more frequent. The precipitation in the area is starting to pick up with frequency and intensity. The crop remains good for now. Northern Asia origins are closed while Southern Asia weather is creating erratic crops. Cool showers and bright weather are allowing cropping but inconsistently. The Southern Hemisphere origins are pushing to the season if it has not already started. The Argentine season is faring decent, but there are reports of green leaf not selling. As a whole, tea market’s prices follow quality, which can be good and bad in some areas. As 2018 ends, it is common to reminisce on the past but instead let us look to the future. Here’s to a prosperous 2019!
Happy Holidays and Happy New Year to all of our readers.
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.