November 29, 2019 Coffee and Tea Market Report
The C market saw another steady week with prices pushing fresh four-month highs, gaining almost 3.5% on the week. The rise continues to seem fueled by speculative buying, which is running into little resting resistance. Larger funds remain net short overall though continued to cover their position (the weekly CFTC report was delayed until this afternoon for the Holiday) and are close to net flat. Smaller speculators have been going long the market over recent weeks. There remains little pressure on the market from producers. Central America and Colombia are finally seeing coffee flow, but all of this has already been committed and provides no resistance to the market. Brazil is well sold on a forward basis at this point and even with the weak Real they are not incentivized to sell aggressively. Being well financed the Brazilian producer can stand aside at this point and see where the market goes. Positive coffee factors at this point would be; the questionable quality around the incoming Central American and Colombian crops, slowly dwindling consuming country stocks and seasonal tendencies. The macro picture input lends a little support as well with a slightly weaker US Dollar and end of year “risk off” mentality.
Technically speaking the market is overbought and has extended to the upside further (and faster) than expected. Short term it is quite overdue for at least a corrective decline. Bigger picture long term chart patterns calling for a wide range to hold prices remain intact for now and prices back toward a dollar could be seen.
In short, the rally has been impressive to look at but there has been little to no major changes to the underlying structure of the market. Eventually supply changes should see the range the market trades in work higher but now prices appear to be testing the upper limits of the projected range (90-130) and the quality of the buying so far leaves the stability of the rally in question. A pullback could be quite sharp once it begins. For the moment would wait for a pullback to assess the idea of extending coverages.
Improved demand could be seen across the world tea markets this week and more is expected due to favorable conditions. Heavy rains have come to East Africa but without sunshine the full affect has not been seen at auction. With the idea of improved quality following the rains and the two-week break in December, there will not be a shortage of tea anytime soon in this region. There have been reports of landslides and blocked roads due the large amount of rain. With 165,000 packages up for auction this week there was good demand but larger auction quantities are on the horizon. After a dry spell, there is finally rain in the Indonesian growing regions. The auction quantities are rising but demand is slow leaving 28% of all offering unsold this week. There are still some concerns following some buyers and their outstanding payments. Weather conditions are favorable in Sri Lanka but have yet to see any uptick in auction volumes. Although with a lack of tea at auction, this is driving up demand. There is plenty of tea available, including cold weather teas, in the Indian growing regions as they slowly head to the off season. Vietnam has had warm weather which is odd but beneficial as they have allowed one more plucking round before the end of the season.
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.