May 4, 2018 Coffee and Tea Market Report
The C market saw a two month high but managed to close with only slight gains week to week. Fund short cover continued to help the move but their buying has not been explosive. They have been able to cover steadily into increasing origin selling as prices rose. While their short remains quite large overall it is well off the record levels of a few weeks ago. Industry interest has shifted to the sell side of the market for the most part though there has been a flurry of buying over the last few days. With the long standing downtrend broken some buyers are stepping in before the market moves to far from the lows. Physical business picked up a bit over the week as well as higher market prices saw diffs ease a bit off the high levels seen recently. There remains little fresh news in the market. Today was supposed to see protests in Colombia as growers try to convince the government to step in to support prices. Civil unrest in Nicaragua has yet to impact coffee flow. Brazil is about a month away from harvesting the bumper crop that has helped keep market levels low. There is some talk of dry weather over recent weeks lessening yields but this is hard to quantify. Either way they will be harvesting a huge crop. The macro picture hasn’t provided much input of late. The Weaker Brazilian Real has helped farmers sell for the crop but otherwise there has been little Dollar based input.
Technically the market has broken the downtrend that has held fast for the last six months. Near term indicators are a bit mixed as a few became quickly overbought. Chart patterns are a bit inconclusive but at this point are not indicative of a major trend reversal. That said the bounce, while appearing corrective, is structurally incomplete. At this point would expect to see the nearby month work its way into the mid 130s over the coming weeks. More than likely the market will be in for a prolonged period of overall sideways action. For now would not expect new lows anytime soon. Would continue to view any tests of the recent lows as a buying opportunity.
Tea markets returned to norms after an unusual week last week. Argentina’s is coming to a close. The last harvests are entering production facilities. Weather is warm with scattered thunder storms. Kenyan improved but at lower rates. Lots were 5-25usc dearer than previous weeks. PF1s were an outlier as they were able to hold the pricing. The Sri Lankan auctions had good demand this week. High-growns were firm to dearer following quality. Western and Nuwara teas were the featured teas of the week. North Indian auctions had good demand this week. Old-season teas saw regressed to norms after selling high last week. Most other teas held firm at their rates. Producers are targeting May 7th for their second flush. South Indian teas held firm rates. Weather is warm with afternoon showers.
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.