January 25, 2019 Coffee and Tea Market Report
The C market posted modest gains week to week of just 1.3%. It was however, the sixth consecutive week of modest gains and prices touched their highest levels in seven weeks. The drive higher has come on the back of new speculative longs being added in addition to some larger spec short cover. Thanks to the government shutdown, we have not seen a position report on the larger specs for a month now but it would seem safe to assume they still have shorts to cover. The tone in the market has been getting a little more positive as the market continues to monitor weather in both Brazil and Colombia. Brazil weather has continued to be drier than normal and non-irrigated growing areas are starting to show the strain. The market has already been digesting the idea of a smaller Brazil crop due to cyclical production. At this point though estimates of a 10-15% reduction are starting to be discussed closer to 20%. To be fair 20% less from a 60 plus million bag crop is still a lot of coffee but this does not likely warrant prices near a dollar. Colombia is worried about dry weather as well as the Mitaca crop (or mid-crop) develops. At this point, the harvest is fast approaching so concerns are more about quality than quantity. Overall, for the moment though the market is well supplied, so the small reluctant gains over the last few weeks are evidence of the slow shift in focus. The macro picture has provided of little input overall. The US dollar has been choppy during the shutdown but weakening within its recent range overall. Commodities in general have been fairly mixed.
Technically the market has turned positive near term. Longer-term chart patterns continue to suggest a wide range over the coming months with recent levels being at the low end. So overall the idea that the market will push the 130/135 area and test levels seen back in October continues to be viable. Bigger picture would expect a range of roughly 100 to 140 will hold the market for much of the year. With that in mind, current levels continue to look like good value but would not look to buy aggressively into strength for the time being.
The tea world say good demand at auction this week with some exceptions. Kenya saw another monstrous auction offering this week as the total offering was a little over 193,000 packages. Amazingly, only 14% of all packages were unsold. Although good absorption, price as a whole fell as quality slipped. Malawi has struggled with demand at auction due to the enormous amounts being offered in Kenya. This week 75% of all offerings were left unsold. The weather is warm and wet and the crops are high, so there is a reason to be optimistic. Improved demand helped to boost the Indonesian market this week. The end of 2018 was strong so it is good to see they are rebounding well. Crops are good and there should be a useful flush coming soon to the area. Argentina is well into the season with good green leaf intake and full production underway.
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.