July 24, 2020 Coffee and Tea Market Report
The C market saw a positive week posting 6% gains and touching two-month highs. The reasoning seemed more attributable to bored fund shorts than any real news. There was some early week buzz around a cold front in southern Brazil, but this proved a non-factor. Weather continued to be hot and dry and optimal for the ongoing harvest. Lack of momentum into recent lows proved the major factor. Origin selling was sparse. The Brazilian Real was slightly stronger on the week, but overall farmers are well committed for the ongoing crop, which at this point is about 60% harvested and 30/40% sold. Estimated continue to call this crop a record but farmers are well capitalized and see no reason to pressure the market. Physical business remains sporadic as well. There continues to unknown of nearby demand as markets try to gauge reopening (and in some cases re-closing) economies and actual consumption. There continues to appear to be an ample amount of nearby inventory. Despite what appears to be a well-supplied spot market though the look forward over the rest of the year is increasingly murky. Sporadic reports of shipping delays have been circulating (somewhat not unusual during Brazil fruit season, but still enough to raise some warning flags). There continues to be the unknown of available labor during the upcoming Central American harvests. Differentials remain very firm as there is a general reluctance for importers to offer forward differentials into these unknowns. So basically, the market is struggling with a heavy position in hand but an unknown position over the coming six to twelve months and the C market seems to be evidencing these unknowns, trading in choppy spurts of direction but with little follow-through. The macro picture continues to be little direct influence. The Dollar has continued to be weak overall, but this has been offset by the equally weak Brazilian Real.
Technically the market ends the week in a strong stance. Indicators are positive across the board and only slightly overbought. Short term chart patterns are pointing toward 113/115 for this rally. That said there is little evidence that the longer-term picture has changed. The long-term view that a range will continue to hold prices through this calendar year remains intact. Would continue to view prices toward a dollar as good value to extend coverage but otherwise would stand aside and let the range continue to play out. Overall a range of roughly 90 to 130 should confine prices for the months ahead, the low end should be bought but otherwise would stand aside and watch the pattern develop.
The reign of Indian tea markets remains, although it is no surprise. With good demand at auction centers, any small decrease in crop figures drives demand further. Torrential rains have depressed the July crop figure in Assam as much as 20%. The rest of the tea growing world is moving more towards drier periods. The auction quantities in Kenya are steadily declining. The 176,582 packages offered this week will be the largest of the next 3 auctions. This may help to drive demand and quality higher in the region. Covid19 lockdowns and restrictions continue across the world. The extent of the damage to the market and tea category are not fully known as this point. Countries are beginning to relax, and we will soon understand what our new world looks like.
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.