March 15, 2019 Coffee and Tea Market Report
The C market closed almost unchanged week to week but it did touch a fresh fourteen year low (basis active May contract) early in the week. There was little fanfare to the move, as the market place has gotten very complacent to lower prices. Funds are continuing to add to short positions (78k lots), albeit at a slower pace that recent weeks. They remain well below their record short (113k lots) seen into September’s lows though the position is historically quite large. There remains little incentive to fight their direction though the industry continues to push coverage out further into next year into the decline. Physical business remains sporadic with industry buyers only buying hand to mouth on a nearby basis. Differentials remain very firm. Overall, the supply/demand balance now is robust enough that the market seems to be looking past the modest deficit that will result following the current crop cycle. Producers continue to feel the pain of the low C market prices and Colombia continues to be the most vocal. There is continued talk of establishing a minimum price for exports though that is easier to talk about than actually bring into action. Late in the week protesters started to block the main roads to the port. So far, this is not effecting exports. There remains little clear input from the macro picture. The US Dollar remains choppy within its recent range.
Technically, there is actually a slight positive bias thanks to the end of the week bounce. Short term there appears to be a door open for the market to move back toward 102/105 but there seems little reason to expect much more so far. Longer term the new lows keep the idea of a push toward 8500 alive over the coming months. Honestly at this point the market would have to rally substantially (above 118) to lend real confidence that the long-term downtrend is broken. For the moment would continue to buy lightly on a scale into new lows but otherwise stand aside into any bounces until some evidence of a low is seen.
Tea prices were easing across the world markets this week. Many of the area’s prices followed quality allowing higher quality to sell at higher prices. Mombasa had a good absorption rate, as only about 16% of offers were unsold. The overall auction volume dipped, thankfully, this week. Malawi saw selective demand as quality teas sold at a higher price. Rainy weather is challenging the area. Reports of flooding and landslides have reported for areas in Southern Africa. East Africa is dry and hot hence the drop in auction quantities. With quality driving the cost down, rain is needed for the crops to rebound. Sri Lanka and Indonesia saw improved demand this week. Southern India is warm and sunny with good demand at auction. Northern Hemisphere origins are still keeping a close eye on the weather as they wait for their season to start. Spring plucking has begun in some areas but most areas will start in the coming weeks.
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.