June 12, 2020 Coffee and Tea Market Report
The C market fell 4% week to week and posted its lowest close in eight months. That said the week was fairly mundane feeling. Funds continue to add to their net short position and provided the pressure on the market. At this point though their net short (17k lots) is still quite small by normal standards. Industry buying was noted to be picking up slowly as signs of life continue to appear. The at home consumption surge seemed to level off over recent weeks so the market is keenly watching the out of home market for signs of recovery. Physical business remains slow but again seeing a little stirring. Differentials remain firm overall. The Brazil crop as well as the Colombian mid-crop are flowing. Both look good so far in volume and quality. There remain some concerns around how the virus will impact the processing and export of both, but it is too soon to say. There have been noticed of shipping slowdowns globally though. The market will play a balancing act near term with ample supply due to lower demand offsetting the nervousness around forward availability. The macro picture remains quite volatile and it is hard to judge day to day impacts, if any, to the C market.
Technically the market ends the week negative and a little oversold. Chart patterns short term are certainly open to lower levels but on a continuation basis the market is near support levels. Chart patterns as well are certainly not bearish but are open to testing last year’s lows within the context of an ongoing range unfolding. At this point would remain as neutral as possible. While these levels represent excellent value historically the market’s lack of enthusiasm should allow for letting the calendar play out without having to extend coverage aggressively.
Kenya saw a large tea auction this week with 204,000 packages (about 12.5 million kgs) offered with a 22% out lot figure. This is slightly improved than the previous week. Crops are starting to ease as the weather becomes colder and drier. Most of the demand at auction was selective following better-quality tea. India continues its strong track record of late. Strong demand and higher prices are looking like a good rebound from the early season. Crops are still low but gaining. Assam’s second flush are likely to push the price higher, but the prevailing idea is the volume and quality will likely disappoint. Indonesia saw improvements this week in price and intake of offers at auction. Sir Lanka was a little bit of a mix with easier high grown and low grown sale following quality. There is a surplus of CTCs everywhere but India. With domestic consumption driving prices higher, the CTC exports may take a hit. The biggest concern is still the virus. With production ramping up in India, there is a fear that many migrant workers will bring infection on a large scale. Many other origins are also worried about auction regulations and the changes that were made necessary to stop the spread. This will be an interesting space to watch.
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.