March 29, 2019 Coffee and Tea Market Report
The C market closed little changed week to week, which by recent standards constitutes a strong performance. Earlier in the week, the market touched fresh thirteen-year lows and it continues to wallow due to oversupply. The low prices continue to hurt for many and the chorus to do something about them continues to get louder. Focus continues to blame specs and funds for the market’s low levels and certainly, they are a very visible source of pressure in the market. Funds remain about 75k lots short at this point. Speculators and funds though are not the cause of the depressed prices. Certainly, they precluded the low levels but they really only sold initially due to supply forecasts (and later due to the mature trend) and that is the real pressure in the market. The market is still dealing with its first supply surplus in about four years though and this is what drove prices to where they are. That said the flow of the record Brazil crop is finally starting to show signs of slowing down. Forecasts for the next crop cycle continue to look for overall supply and demand to move back to a small deficit. It will take some time for reduced production to take hold on prices though and to be fair, even a twenty percent smaller Brazil crop is still a lot of coffee. Therefore, it seems likely that prices will remain fairly low for some time. Physical business remains focused on the nearby market as the industry is living a bit hand to mouth. Differentials remain very firm so most of the activity is using the low market to offset those costs but forward business has been very light. This should eventually spark some better demand that could ignite a rally but that too could be months away. The macro picture has provided a little pressure on the market from the weak Brazilian Real as well.
Technically the market is a bit oversold and there are signs that at least a small rally could unfold near term. At this point though it would likely take a ten to fifteen cent move to make the larger bears nervous. Chart patterns still suggest a push toward 85 cents is possible near term. For the moment would stand aside into any rallies to gauge their potential. Otherwise, continue with a patient approach, buying on a slow scale into continued weakness.
Tea markets remain stable this week. Weather and production are typical for this time of year. Argentina continues to have a good season. China production will begin next month. Recent cyclone in Mozambique and Zimbabwe has had a severe impact on the port of Beira but tea production in nearby Malawi has been mostly unaffected except for power outages.
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.