February 15, 2019 Coffee and Tea Market Report

Coffee Market

The C market fell to a fresh low for the year going into the long weekend. Prices dropped 4.8% week to week, as focus was on position liquidation ahead of first notice day for the spot contract next week. Large speculators have continued to short the market as well. Buying interest was light from the industry, as it remains well-covered overall. Rains moving into Brazilian growing areas also encouraged some selling though there is some debate whether or not recent dryness has already reduced the developing crop. Only time will tell. Overall, the dynamic to the market is a bit confusing. Nearby the market is well supplied after a bumper production year and the nearby trading is reflecting that. Looking forward though reductions in many crops for the coming cycle has the global supply demand balance forecast to return to a production deficit for the coming year. The spread between the nearby trading months and the forward ones is widening reflecting that dynamic but so far, this has not yet lead to an overall price rally. At some point in the not too distant future, it should. The macro picture has not been much of a contributing factor.

Technically the market is actually mixed despite the week’s losses. The longer-term charts still suggest the market is trying to form a bottom after a very long downtrend. Overall, it is hard not to see current levels as good value but the continuation lower is a bit surprising. At this point would look to cautiously buy on a scale down basis and be watchful for a turn higher that may likely be sharp once it happens.

Tea Report

Kenya continues to astound with tea auction volumes. A staggering 197,000 packages were at auction this week! That sets the record for largest volume at the Mombasa auction. The weight of the amount on the block is also pushing prices down. Prices hit the lowest auction average in the last five years. There was improved general demand this week only leaving 13% unsold. Somehow, dry weather in East Africa has not slowed production. It does not look like the large auctions are ending. This could be problematic for the demand in the region. Sri Lanka, South India, and Indonesia are performing as expected for this time of year while the rest of Asia is relatively quiet. The Southern Hemisphere is producing well along the seasonal average. There have been reports that small producers in Argentina will start closing in the coming weeks. A lack of business is pushing them to close earlier this season than normal.

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.