June 26, 2020 Coffee and Tea Market Report
The C market closed slightly higher week to week but basically wallowed at recent lows. Prices were contained to a five-cent range and traded back and forth. Interest in the market has been minimal. Funds have been slowly building a small net short position as they sell into modest industry buying. Their interest is small by historic standards and has been unable to generate any real momentum so far. Origin selling has been scarce even though harvesting is well underway in Brazil and Colombia. The Brazilian Real weakened once again but producers are well sold at this point. The Brazilian harvest has been progressing well and seemingly seeing little impact from Covid. There have been some issues with exports though out of Brazil and Colombian as transit carriers reduce vessels. To this point it has not seen a direct impact on supply, but it remains a point to watch closely. Overall the industry is feeling a bit of a buzz as economies slowly open and there is some very cautious optimism notable. At least in the US though there is necessary skepticism as restrictions are lifted and cases of the virus climb in some instances. The months ahead are not offering any more clarity than the previous few but at least there are signs of life to focus on. The macro picture remains quite volatile understandable and has not been directly impacting the C market in a notable way.
Technically the market is very mixed. The proximity to the lows and the lack of volatility make the market feel quite heavy. The lack of momentum to the downside though and the funds selling into the lows suggest that support will hold overall. Longer term chart patterns continue to paint a range for the remainder of the year and at the moment would expect that to hold. A rough range of 90 to 130 is projected and obviously that suggests current levels continue to represent good value. Would temper enthusiasm a bit given the current situation and the wealth of unknowns around Covid but would continue to look to extend coverage in a metered way at prices around a dollar.
Another large auction quantity was seen this week at the Kenyan auction. Around 197,000 packages (12.8 million kilos) were offered this week. Large auctions are becoming a normal occurrence. This week it was met with good demand only leaving 17% unsold. Some grades gained quite a bit of ground up to 40usc per kilo. Crops figures for India have come in for the January through March time frame and they are a bit scary. A figure of 28% production drop was seen for the country. In North India alone there was almost a 50% drop in production. For the June crop, many believe the numbers will be down around 30% from 2019. With this shortage of tea coming from the region, the demand is high. 95% of all offerings were sold at the Kolkata auction with some grades increasing in price up to 40usc. All the other Indian auction centers saw good demand at firm price levels. Next week will be another one to watch. The Mombasa (Kenya) auction will yet again but a large one at 189,980 packages. The North Indian auction at Guwahati will have an auction with 164,950 packages. The amount of tea at auction will be an interesting factor for the time being.
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.