November 22, 2019 Coffee and Tea Market Report
The C market continued its recent surge gaining 5% week to week. Prices tested a four-month high. The basically came on the momentum of the last few weeks drawing in new speculative longs. Large specs remain a small net short overall. The overall picture really hasn’t changed much. Central American and Colombian crops are flowing but differentials remain firm as much of the markets seems short nearby. There is a somewhat positive bias as consuming country stocks have been being drawn down, but the market is a long way from tight on supply. Overall this rally seems more of a speculative/technical move than a major shift in supply demand outlook. Low prices overall continue to stress producing countries. Colombia has been seeing increasing unrest of late. This remains a critical focus for the market, but solutions are not easy to come by. Aside from the Brazilian Real continuing to be quite weak the macro picture is providing little clear directional input.
Technically the market is strong nearby though a little overbought. The recent surge has chart patterns leaving the door open for a push into the 123/125 area (basis the active March contract). Does this change the large-scale view of the market that a broad range will continue to hold prices? Not really. Despite the speed of the move there is nothing so far to suggest that a major bull move is in the cards. The upper end of the range should be defined around 130ish. Short term a corrective decline seems overdue. Would expect a pullback to the 110/107 area. The structure of such a move will help define upside potential. Overall would continue to look at the dollar area as a target to extend coverage. For the moment would continue to stand aside into strength.
Quality remains king at tea auctions around the world. There was plenty of tea up for auction but with markets eased. Kenya is seeing useful rains and an increased intake of leaf. This is pushing the number of lots at auction higher and higher. Next week is expected to have 161,000 packages up for auction. Malawi’s forecast has been a little different with extreme temperatures and lack of rain. Producers are still waiting for showers in the area to help the bushes recover. Indonesia is having the opposite forecast with heavy rains but with an optimistic outlook. At auctions this week, there was less and more selective demand. After the final hammer struck, there was 32% of the offering unsold. Sri Lanka is holding its Presidential elections on the 16th. It has been peaceful so far so it more than likely not going to affect much of daily life. Improved weather is allowing a slow recovery for the tea. Indian export figures have been reported with almost the exact same amount compared to 2018. The interesting point of this is that the price has increased 7% from 2018. This shows that India’s efforts to improve quality has paid off in 2019.
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.