February 22, 2019 Coffee and Tea Market Report
The market continued to slowly grind its way lower this week. Prices dropped 1.6% and again touched a new low for the year. The pressure continues to come from larger specs adding short positions. There remains ample supply nearby and the industry is well covered, so there is only mild support seen on the way down. Factor in a stronger US Dollar and a mature long term down trend and specs are comfortable sellers. The dynamic in the market remains somewhat odd. With differentials very firm due to the low market the focus remains very much on the nearby. Any physical activity is nearby and hand to mouth. Global production will take a downturn later this year but the market seems to be ignoring that for the moment. News wise there is little to talk about. Brazilian weather has improved though it is too early to say whether recent dryness will cut the coming crop any further. Due to cyclical tendencies, it is already forecast to be about 15% smaller than last year. The macro picture continues to provide little input aside from the weaker Brazilian Real.
Technically the market is a bit oversold nearby but it is difficult to ignore the larger trend. At some point, the market will rationalize the next production cycle and funds will again turn to cover their shorts. Last time they covered the market moved thirty cents higher very easily. While any bounce under the current circumstance would likely be less pronounced as they are not quite as short, it can still be substantial. Longer term there is value at these levels. Would continue to slowly scale buy into continued weakness. Once a turn is seen upside potential can be assessed.
Tea production started to dip in Kenya this week. This is welcome news as the last couple of weeks have shown massive amounts of tea at auction. This should help to increase demand in Kenya as well as surrounding areas. Malawi has not seen a lot of demand in past weeks with so much attention on the Kenyan auction. Around 40% of tea offered at auction sold this week in Malawi. Demand followed quality as many of the well-made teas were absorbed. The Sri Lankan market came down this week as many large buyers stayed quiet. This is odd to see, as the recent weather is conducive to a healthy crop. Opposite of Sri Lanka, the Indonesian market saw improved demand with only 11% remaining unsold. The overall amount at auction is lower this year compared to 2018. With around 11,000 packages up at auction, this comes in 36% less than this time last year. 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.