October 25, 2019 Coffee and Tea Market Report
The C market saw three-week highs thanks to a late surge. Prices gained almost 4% week to week though the road higher was again a choppy one. Overall there remains little in the way of a consensus in the market and the price action is reflecting that. The test of the recent lows has seen industry buying materialize over recent weeks and now the market is reacting higher off that support. The strength seems more speculative than anything though as both smaller and larger traders cover short positions. Physical coffee flow remains light. Central American harvests have begun and there are some early concerns about quality. Colombia’s main crop is flowing slowly so far. In both cases differentials remain quite firm. Brazil is seeing some rains after the large flowering a few weeks back; development is being monitored closely and so far, things seem ok. There is some doubt though that Brazil will see another record harvest from the developing crop, though reaching last year’s levels remains possible. Overall despite some concerns over quality and timing of certain types the market remains well supplied near term. The macro picture lent some support to prices as well. The Brazilian Real strengthened after some good news on economic reforms and the US Dollar remained weak overall despite lifting off recent lows. Headlines regarding Brexit, economic protests and geopolitical conflicts are keeping the macro picture a bit volatile.
Technically the market is positive at the end of the week and appears like it wants to test the higher end of the recent range. A push into the 105 area certainly seems likely short term. The market may be hard pressed to sustain levels any higher than that though given the recent range bound activity. While a push toward the highs seen earlier this year (115/117) is certainly possible longer-term charts are still leaving the door open for a test of 85 cents. At this point would continue to view levels at or below a dollar as an opportunity to extend forward coverage. Would also stand aside into any strength for now.
There was good demand at the Kenyan tea auction this week. With 147,000 packages (about 9.7 million kilos) offered, only 12% were unsold. Next week’s auction is projected to be slightly lower with about 139,000 packages up for auction. Rains have arrived in East Africa but there is still sporadic hail. Production has started to increase although it is cool at times. It is projected that the auction will reach around 151,000 packages for the week 46 auction. Sri Lanka showed promise as good demand was seen with some grades gaining in price if the quality warranted the climb. Crops are down for the moment but many of the growing areas are reporting rain, some heavy at times. Argentina is seeing fair weather with heavy showers and warm days. Most factories are fully open but with red spider infestation popping up, it may delay the immediate harvest. Output for 2019 has been very close to that of 2018 but there is still time for some of the origins gearing up for their season. The markets in general are slightly more balanced than last year with any excess tea likely to come from the Northern India region. This is manageable as much of the excess production can me consumed in this region.
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.