August 6, 2021 Coffee and Tea Market Report
The C market saw a very quiet week by recent standards. Basically, shell shock seemed to set in, and prices drifted in a small seven cent range, eventually settling down about 1% week to week. Industry support was notable near the 175 area. Into last week’s sharp decline larger specs were the noted sellers. Once that ended the market found little pressure. There was little news. There was no additional frost damage last week, so the panic of the prior two weeks died down. Weather forecasts for Brazil have warmed and while there is still the potential for frost (the latest on record occurred in mid-September) the focus is shifting toward the lack of rain. Rains in Sep/Oct are critical for crop development and that could be the next catalyst for a substantial move. Trees are obviously very stressed after the frosts and there was notable damage to production potential (as evidenced by disturbing pictures and videos circulating). Rains will not bring back the 5mm estimated bags of potential that was destroyed. Without needed rain though the output potential will be even more severely impacted. So, in short, the weather watch is far from over for the market. Outside of Brazil weather the market continues to see delays around shipping overall though they do seem to be easing up in a few directions slowly. The costs that have been added though seem here to stay and are putting a strain on forward physical activity. Differentials as well have eased slightly though freight costs are more than compensating. The macro picture was a mixed bag and did not provide any notable input.
Technically the market maintains a slight negative bias on the short-term charts. Chart patterns as well suggest additional downside potential over the coming days, but more than a 5-6 cent break of the week’s lows seems unlikely. Bigger picture the decline off the recent high is structurally not suggesting a major reversal. So there remains potential for another notable rally. Given the supply demand outlook there seems limited potential for a substantial price decline and this is supported by the longer-term chart outlook. Would continue to expect a range of roughly 150/180 to eventually hold prices for some time but would not expect to see the low end of that anytime soon. The risk remains to the upside for the coming months. At this point would view prices in the 180/175 area as good value to extend needed coverage. Would also expect to see volatility to return before too long.
The trend continues in the Tea world this week. Logistics is still an issue world-wide. Rates continue to rise with no end in sight, many producers fear that it may continue well into 2022. At best guess, many believe that it will ease in Q2 of ’22. Kenya’s auction this week saw much more demand than in weeks past. It was a lower volume at 182,500 packagers offer (11.9mil kg) with 17% unsold. This is much better movement than previous weeks with the imposed price limits. Production has decrease sharply in response to colder weather. Output is about 9% lower than a year ago, but export has actually increased above production levels by 5% over the last 6 months. Drought is causing concerns in Argentina. After the second consecutive year of drought, river water levels have fallen to record lows. This is affecting power and transportation. Crops have eased with drier weather in India. There was fair to good demand across North and South.
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.