January 31, 2020 Coffee and Tea Market Report
The C market’s month long sell off continued this week. Prices dropped another 7% to three-month lows. Larger speculative funds continued to be the notable sellers as they continue to unwind their modest net long position. Selling was also coming from other investment sectors as a general risk off mentality permeates the markets. Industry buying continued to build as the market moved lower but much of this buying is far forward on the curve. There really is little fresh news. Brazilian weather continues to be excellent for the developing crop and many estimates are starting to call for it to match or even surpass the record crop from two cycles ago. With the market down differentials continued to firm. Physical activity remains sporadic, but the calendar is forcing some activity. On the macro side the coronavirus outbreak is wreaking havoc on the equity markets and leading to the aforementioned “risk off” mentality.
Technically the market remains oversold with a few indicators turning higher. Chart patterns are looking a little more aggressive from a negative standpoint but overall are not suggesting, so far, that the rangebound outlook is changing. At this point would continue to think the downside is limited and expect that the market will return toward the midpoint of the recent range over the coming weeks. Continue to view these levels as good value and extending coverage patiently seems wise. Once a bounce ensues would stand aside and see how the range develops.
Kenya registered the largest auction ever at the Mombasa center since the inception of tea auctions. A monstrous 13.8 million kilos were offered with only a 12% unsold rate. Even though there were excessive amounts of tea, the price only fell slightly for all grades but PF1s. Malawi saw a slight decrease in absorption rate to 75%. This may be due to the increase on non-certified teas. Production in the east African growing regions are healthy but there are signs for a decline in production soon. Other origins are having different difficulties when it comes to weather. There was too much rain in the Indonesian growing regions. To top it off, there was also lower demand this week with 35% remaining unsold. Cooler weather in Asia is declining crop production. India is seeing poor demand at auction in both North and South auction centers. Crops are low and weather is cold and dry. Low rainfall is still affecting crops in Argentina, but they are beginning to rebound. There is more rain in the forecast, but producers are still wary.
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.