June 14, 2019 Coffee and Tea Market Report
The C market drifted lower this week as prices dropped consistently but the activity lacked drama. Losses on the week totaled about 5% but it was more of a patient decline than a dramatic move. The fund short covering that had fueled the sharp rally over recent weeks has stopped and focus has shifted to position liquidation ahead of first notice day on the July contract. With the market in the middle of the recent range there is little incentive to push prices in either direction. Physical business did pick up a little over the last week but seems more a function of the calendar than any dynamic change in prices. There remains little news. The Brazil crop is progressing slowly. There remain some concerns about the overall quality of the crop due to its uneven maturation. It is still too early to judge though. The rally did ease the talk of low prices hurting production but only because it is a quiet time of year with most origins between crops. Still estimates of reduced output for the next crop cycle are starting to be heard. The price change over recent weeks while seeming dramatic certainly hasn’t helped producers much. The macro picture remains a bit unstable at this point with markets not showing a consensus of direction. The general “risk off” attitude seen recently seems to have calmed but volatility remains high. The US Dollar and the Brazilian Real have both stabilized for the moment.
Technically the market ends the week on a negative note, but it has already retraced more than half the recent gains and appears to be losing momentum. Overall chart patterns continue to view the recent activity as corrective within the long-term decline. At this point it seems likely that the market may settle into a wide range defined by the recent price extremes for at least the coming months. While additional gains cannot be ruled out there is no indication that a major low has been registered. For now, would continue with the mindset of standing aside into any strength. Would only look to buy additionally if new lows are seen.
Prices followed Tea quality very closely this week. In most cases, this was a downward slope. Demand has also fallen across the board, with only a couple exceptions. Well-made orthodox teas coming from Northern India have actually gained ground following the quality. Although all other types did not fare so well even at Indian auctions. Monsoons are close for the majority of India. For the most part production continues along seasonal norms. The exception is Indonesia. Forecasts show dry weather for the latter half of the year. For now, Indonesia and most of the other growing regions are warm and wet but only with fair to good crops. Argentina has closed its season and now it is on to vacations and maintenance for the factories.
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.