December 7, 2018 Coffee and Tea Market Report
The C market saw a two month low today as it slipped slowly all week. Prices lost 3% week to week and a very apathetic tone prevailed. Selling was mixed speculative interest. Larger funds remain a decent sized net short in the market but not outside of historical norms. Some macro “risk off” selling was noted as well. Buying was limited to light scale interest from industry players. Overall, despite the losses, it was not a dynamic week. There is little fundamental news to drive the market and since funds have covered more than half their historic short position, there has been little to unify market opinion. Physical activity remains light, as differentials have firmed again with the C market decline. In general, the market is well supplied nearby and has little incentive to drive prices higher. At the same time, the current supply is priced into the market and early estimates for the next crop cycles in general see slightly less production. So there is little incentive to push prices beyond recent lows. As mentioned the macro picture is a bit heavy across the commodity spectrum though as year-end approaches. The Dollar remains firm but has leveled off overall.
Technically the market is negative short term and a test of the September lows seems possible. That said the overall chart structure off the October high appears corrective and not indicative of a resumption of the long-term bear trend. At this point, it would likely take a break above 111 (basis active March contract) to reignite the rally but overall the downside appears limited. For the moment would maintain a neutral bias and let the market develop. Overall, current levels continue to represent value but the market may drift around current prices for a little while.
The Argentinian season has officially started are factories are gathering momentum. Weather remains dry and uncharacteristically cool for this time of year. Demand lessened in Kenya. Prices generally eased by 2-15usc across the board. It is the towards the end of the rainy season but some areas have begun to dry up already. These drier areas have seen a dip in crop yield; however, overall crops remain healthy. Improved demand in Sri Lanka. Teas gained 10-30usc following quality. Nuwara Eliyas teas were an outlier with 5-10usc lower prices and some withdrawals. Weather is bright with some showers. Crops are healthy. North and South India showed good demand. Prices closely followed quality. Weather is cool and dry. Crops are a bit down.
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.