July 26, 2019 Coffee and Tea Market Report
The C market continued to give back recent gains this week. Prices dropped 7% and saw a one month low. The frost premium has now been erased as prices settled back below a dollar. There is no real news driving this decline and overall the week’s action was rather mundane. Light origin selling pressed prices into little resting buying. The industry is continuing to chew through long positions added months ago and has little incentive to lend support to the market right now. Funds and larger specs were largely absent from the activity. With funds basically in a neutral stance right now there was not much in the way of volatility and the market just pressed steadily lower on the week. The physical side of the market remains very quiet, which is normal for this time of year. After a brief flurry of activity into the price spike, differentials have remained firm. Until the next crop cycle in Central America starts to harvest there are too many unknowns for sellers to be aggressive. The Brazilian harvest is finishing up over the coming weeks and focus will turn to quality as there are concerns on that front. Multiple flowerings during development has seen an uneven maturation to this crop and this could have a real impact on quality. That coupled with the cyclically smaller production and minor frost related losses should keep Brazilian differentials firm as well. Would not expect much action on the physical side of the market for a while. The macro picture saw a strong US Dollar but little consensus from commodities in general.
Technically the week ends with an outside day (and week) lower on the charts and a negative bias overall. The decline has now retraced more than half of the recent rally though and some choppy activity next week seems likely. Overall would continue to expect a range of roughly 85-120 to hold the market through the rest of the year. As prices continue lower would once again look for buying opportunities. Would remain neutral into any short-term strength though. Unless something changes there should be multiple opportunities to buy well over the coming months.
Tea prices advanced slightly this week with quality. In most areas, production has dropped a little bit increasing demand slightly. Markets this week were better than the past couple in regard to demand and price. North India has endured two weeks of unprecedented monsoonal rain. The sale of teas has subsided over that span. However, there is optimism with the idea of harvests accelerating now that the floodwaters receded. Sri Lanka is dry, and the crops have eased but there is rain in the forecast. There was still selective demand for well-made teas. Indonesia saw poor demand this week with some main grades gaining just a couple cents (US) while most of the offerings lost up to seven cents (US) or were withdrawn. The return of major buyers in Malawi boosted demand along with a lower auction volume. Overall, there is a surplus of tea as the market is over loaded with mid to low quality product without a home.
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.