July 17, 2020 Coffee and Tea Market Report
The C market posted a solid rally to end the week, pushing four cents higher on light volume. The gains all happened today as much of the week was spent chopping around the lows after a five week low was tested early on. In the end prices gained 4% week to week. There was no major news to speak of. Some were citing a weather report for a cold front moving into Brazil late next week, though there seems little to no risk that it would effect coffee areas at this point. Overall today’s move seemed generate by short funds covering out of either concern that they were unable to generate enough momentum to challenge last month’s lows or simple boredom. The physical side of the market continues to see spotty activity but is struggling with nearby inventory seemingly in excess of demand but the complete unknown of when demand will normalize (or what normal may be). The US continues to struggle with surging cases of the covid19 virus and has seen some talk of re-closing economies as a potential course of action to stem the tide. The market is also focused on the ongoing reports of surging cases at origin (especially Brazil) and the potential supply impacts that may be seen over the coming months. Differentials remain quite firm overall facing this unknown. The macro picture remains choppy as well and has seemed to have little direct impact on the C market day to day.
Technically the market ends the week in a positive stance overall. The late momentum and strong close suggest the bounce may continue, at least short term. Chart patterns are pointing toward 110 or so for this bounce. Bigger picture, the song remains the same. Long term charts are projecting a long, drawn out range for the coming months. Prices toward a dollar represent the low end of that range while the upside is likely going to remain limited to 125/130 unless something materially changes. At this point there seems little incentive for a prolonged rally though even if the market moves higher short term. Would continue to eye the low end of the range as value to extend coverage but temper that against the unknown supply/demand situation over the months ahead.
Demand and pricing for Indian teas remains strong. This is projected to last through 2020. Production expected to return to normal in the last quarter even though localized Covid-19 lockdowns continue. Kenyan oversupply continues to weaken pricing and the demand for other African teas. Reports of blank sailings continue as global ocean market readjusts to demand. Argentina continues to ship teas to the US market as some foodservice demand returns.
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.