February 7, 2020 Coffee and Tea Market Report
The C market saw early losses but stabilized a little by week’s end. Prices lost almost 4% on the week and tested three-month lows. Once again larger speculative funds provided selling pressure. They moved to a net flat position by midweek mainly by virtue of new shorts being added. There is a clear lack of consensus in this sector and this should keep prices volatile near term. Industry buying increased into the lows and prices traded sideways through the end of the week. Physical business remains spotty as differentials remain firm overall. Central American differentials especially are strong and offers are scarce. Late crops, quality concerns due to low prices as well as lack of labor have seen offers dry up. Some Central American crops are expected to be 20% smaller than last cycle. These concerns are somewhat offset in the market’s mentality by the developing Brazil crop which is progressing well and expected to challenge the record crop seen two cycles ago. The macro picture remains quite volatile around concerns over the coronavirus. The US Dollar is quite strong, and this is also weighing on prices.
Technically the market remains oversold and is showing a few weak buy signals. That said it is not enough to force a turn. Chart patterns also suggest a low is near though, at least for a corrective bounce. Would expect a return toward 105/110 would happen easily. At this point the longer-term view remains unchanged with expectations revolving around a wide range for the coming months. Overall would continue to view current prices as good value near the low of the range. Would continue to view opportunities to extend coverage below 115 as good value. Into a notable bounce would stand aside and expect that range to afford further opportunities in the near future.
Another monstrous amount of tea was at auction this week in Kenya at around 212,000 packages. This week fell short to the all-time record from last week. Intake remained fair with around 15% being unsold. The overall price of the auction did fall slightly. The auction in Malawi almost had the same demand and absorption rate as last week. Crops are slightly down but their weather is looking favorable for the near future. It was handed down this week that there will be a new political election in 150 days. This may be an interesting turn as the last elections from May 2019 will be overruled. This could have effects on the tea industry but so far, the mood around the decision has been a peaceful one. South Indian tea centers saw improved demand with some firm types being sold. The weather is dry for now but there is the occasional shower. North India is a little different at the moment with poor demand. The end of season CTC teas are losing some price at auction while the orthodox types are maintaining a little better.
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.