June 28, 2019 Coffee and Tea Market Report
The C market continued its recent upswing touching four-month highs by week’s end. Prices jumped a little more than 9% on the week. The rally continues to be fueled by large spec and fund short covering. On the week funds halved their net short position and are now carrying their smallest short position since October 2017. The buying continues on the back of a general “risk-off” mentality across most commodities with funds lessening their exposure as geo-political tensions rise and trade war talks continue to circulate. The rally has seen some of the price pressure producers have been feeling lessened as well and physical business picked up accordingly. Differentials in general remain firm but pent up demand saw a good amount of forward business take place during the week. There is little news in the market with many origins between crops. The Brazilian harvest is progressing, and concerns are popping up about the quality. Multiple flowerings and sporadic rains during the development lead to uneven maturation and it is a concern. A few cold weather scares have proved unfounded so far. With the quality concerns and the smaller production cycle differentials will likely remain firm.
Technically the market has a positive bias near term though indicators are getting a little over bought once again. At this point chart patterns are suggesting the near-term strength will carry the market a bit higher still with targets lying around 11480. Overall though longer-term charts suggest this rally is part of an ongoing consolidation that will see the market settle into a broad range for months to come. Would expect this move sets the high end of that range. Would only look to extend buying ideas into prices back toward 100 at this point. Otherwise stand aside and see how things unfold.
Prices followed quality again this week but with better absorption across tea markets. There were limited quantities of improved and brighter teas available driving demand and prices. Other lower to intermediate grades and CTCs did not do as well at auction this week. Production in East Africa is healthy but there are dry days and colder nights. Crops are expected to fall in the short term. Weather is warm and dry in Indonesia with improved demand. This auction center saw some improved demand but mostly following quality. Crops are easing in India, as weather is cool and wet. Some cold weather teas will be at a premium. The usual monsoon weather is present in northern Asia. Opportunities are present for some growers to improve quality and push the price a little higher. Those who produce more of the intermediate grades may be locked into their position at auction for the time being.
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.