November 2, 2018 Coffee and Tea Market Report
Another volatile week for the C market. Strong selling was seen Monday in the wake of the Brazilian Presidential election and the market dropped eight cents off last week’s close over the first few days of the week. The initial wave of selling was spurred by speculative bets being placed (or held back) in anticipation of the election. The Brazilian Real however moved little and long speculators expecting further gains were disappointed and sold quickly. At the same time other speculators sold the market, assuming the rally was over now that the election was over. In both cases, these speculators were disappointed. While the Brazilian Real’s recent strength provided an initial spark for funds to begin to cover their record short the market continued to rally after the Real stabilized and seems to have decoupled from the currency’s movement. Over the end of the week industry buying materialized into the decline and provided support for the late recovery. On the week, the market actually posted small plus signs. The background story remains the same. Funds are still in liquidation mode and buying the market in waves. There is little pressure from producers. Brazil has sold much of their record harvest and is staying back from the market. Central American harvests are running a bit behind schedule and there is little to no pressure from them as well. Differentials have eased slightly over recent weeks but overall physical activity remains subdued. Some industry forecasts are starting to look at the next Brazilian crop. Early estimates are for as much as a 20% downturn in production off the record crop based on normal seasonal tendencies. On a macro, level there seemed to be some broad based strength midweek but many markets pulled back into the end of the week.
Technically the market is positive. Chart patterns are building a strong base at this point and near term projections target a push toward 145 (basis the nearby month). While a more sizable corrective decline cannot be completely ruled out is seems unlikely that even this week’s lows will be tested soon. Longer-term indicators are now positive as well. Overall would continue to view price dips into the 110/115 range as buying opportunities. Beyond that would sit back and let the market develop. A broader range of roughly 110/150 seems likely for the coming months.
The Argentinian season is officially starting. Weather is warm and showery with all signs indicating more rain is on the way. Kenya displayed very good demand this week; however, it was at slightly dearer prices. The plainest broken types lost the most, about 10usc. The weather was wetter than in previous weeks. Crops are steady. Demand lessened in Sri Lanka. Bright Westerns & Nuwara Eliyas’s made solid gains but most eased by 10-20usc following quality. The weather is wet and windy. Crops are improving. After being closed last week, North Indian markets had strong demand. This was led by bright Assams. Weather is warm & dry. Crops are easing. South India showed good demand. This was led by Nilgiri CTC & Orthodox Teas. Weather is cool and dry. Crops are fair.
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.