June 8, 2018 Coffee and Tea Market Report
The C market tested six week lows this week as prices dropped sharply. The fall was the product of currency volatility and no real coffee “news”. The Brazilian Real fell sharply as speculators placed bets against the Brazilian economy. The Real touched two year lows against the US Dollar. The reason this weighed on coffee prices is that Brazilian farmers sell their product in Dollars and then buy their local currency. So the weak Real vs the Dollar allows them to sell at lower C market (Dollar) levels and still buy more Real. In Real terms despite the lower C market farmers were selling at nine month highs. With the new bumper crop beginning to be harvested they were very willing sellers. Large funds actually used the weakness to cover their short bets on the market. Industry buying increased once again as the market neared recent lows. On other fronts it was a fairly quite week. The Brazil truckers strike ended last week though there seems like some light delays still exist. Civil unrest in Nicaragua continues and is starting to impact exports. This has seen differentials firm slightly overall. In the macro view commodities in general weakened against the firmer US Dollar.
Technically the market is painting a mixed picture near term. This is not unusual as it slowly tries to turn the long term downtrend that has been in play. This week’s low (a double bottom) held above the April low so far. Funds are covering shorts into the decline showing that their long term negative bets on coffee are being lifted. Chart patterns are now pointing to what should prove to be a prolonged sideways consolidation. At this point there is nothing suggesting a sharp reversal higher will be seen short term but overall current levels are still seen as good value. Would expect prices to slowly stabilize over the coming months.
Markets remained steady this week. Argentina’s season has officially closed. The remainder of processing is sorting and packing outstanding contracts. Kenya’s demand remained on a downward trend. However, pricing was highly irregular following quality. The better teas gained up to 20usc while the lower grades lost by similar margins. Weather is mostly rainy, though rainfall does seem to be easing in some districts. Crops are beginning to yield. Softening demand in Sri Lanka lead to reduced pricing. Weather is monsoonal with some flooding. Crops are easing due to reduced son and labor issues related to the flooding. North India displayed fair demand with pricing following quality. Weather is becoming more and more, rainy as we approach the monsoon season. Crops have been extremely healthy but are expected to ease as the monsoon season sets in. South Indian auctions were on par with last weeks- displaying fair demand at expected prices. Weather is cool and rainy. Crops have eased.
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.