March 29, 2018 Coffee and Tea Market Report

Coffee Market

The C market headed into the long holiday weekend in a familiar fashion, little changed after a quiet and choppy week. There remains little news in the market and apathy prevails. The main themes remain unchanged. Funds are at or near a record short position. While this is potentially explosive price wise their position is tempered in market sentiment by the bumper crop developing in Brazil. Even though nearby availability is quite tight the market is fairly well covered and sitting back for now. Differentials remain firm overall and activity has been minimal. Fundamentally, beyond the Brazil crop, much of the talk is on the Colombian tightness with the midcrop coming in late. Some estimates for overall Colombian production are starting to get lowered and the situation certainly bears watching. The low flat price has Central American diffs firming as well and business has been light and sporadic.

Technically a familiar story overall as well. The market remains mired in a slowly deteriorating bear trend. Even though the trend is quite mature there seems little incentive to second guess it at this point. The most positive thing to say today is that the market did not make a new low this week. Indicators are still pointing lower though are a little oversold. Chart patterns see potential for a modest corrective bounce short term but it would likely be less than ten cents. Historical seasonal tendencies suggest some strength short term but that window is quickly closing. Very soon the old adage of “sell in May and go away” will start to take hold of market mentality. All this said though would continue to view weakness as a good buying opportunity. Long term charts continue to target a major low near current levels. Funds can obviously sell more than we expected but that will change someday and the amount of short in place right now will not be absorbed easily by the market once they try to cover. The big Brazil crop is basically well priced into the market. Overall is would seem bearish ammo is running out. Short term a test or even a break of last year’s low seems likely but much more than that does not. Upside potential once a major low is registered could easily see the market back toward 140 without any major developments. Continue to see value in current levels overall.

Tea Report

Tea markets were fairly consistent this week. Argentina is a bit colder than what we would usually expect. Producers are only expecting to squeeze in one more harvest before bringing the season to a close. To date yield from the factories continues to produce strong quality. Sri Lanka saw increased demand for low growns which was balanced out by lessened demands for high grown’s. Overall prices were a bit easier. Weather over the region is bright with scattered showers. Demand in Indonesia was fair yet 20% of offers remained unsold. Weather was mixed across the country. In the Indian markets that were open, Coonoor & Coimbatore, demand was fair to strong with firm pricing. Producers are expecting approximately a 10% drop in 2018 volumes from their 2017 levels.

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.