October 26, 2018 Coffee and Tea Market Report
The C market lost ground for the first time in five weeks, dropping 2% week to week. Basically, the market traded in a small range and consolidated near the recent highs. Fund buying, which has been driving the recent rally, has waned now that they have cut their record net short position back to more manageable historical levels (51k with this week’s report). Modest origin selling has been noted over recent days as well with the market at more palatable levels. There remains little news. This weekend though will see the Brazilian Presidential elections second round. Conservative candidate Balsonaro remains the expected winner and this is seen as positive news from an economic standpoint. The Brazilian Real remains near recent highs at this point. The physical side of the market remains a bit quiet. Differentials remain high overall. Central American crops are not yet flowing. Also, shipping delays continue out of Brazil and this has seen consumer stocks dropping. This has had little market impact so far though.
Technically the market has become overbought near term and is acting accordingly. The consolidation overall is welcome on the charts to build an overall bullish argument. Short term the coming days could see the market pullback into the 115/113 area basis the nearby contract. Bigger picture though weekly and monthly indicators have turned positive and suggest that market will push into the 130/140 area before too long. With the long-term bear appearing complete, the market will likely “settle” into a broader range over the coming months. Would still view prices below 115 as a buying opportunity but would refrain from buying recent highs for now.
The Argentinian season is officially starting. Weather is warm and showery with all signs indicating more rain is on the way. Kenyan demand improved this week. Better made teas saw a 5-15usc jump while poorer made teas lost by similar margins. There is a mix of weather with East of Rift Districts remaining mostly dry and scattered showers throughout the other districts. There was steady demand in Sri Lanka. Easterns and Nuwara Eliyas teas gained, who 10-25usc, were offset by losses in balance teas. There is a good deal of rain with flooding in some parts. North Indian auctions were closed for holidays this week. The Dussehra festival celebrates the triumph of good over evil. Pending the region, it has differing names & slightly different start dates but traditionally celebrates Lord Rama rescuing the Princess of India from the demon king Ravana. South India showed fair demand at slightly lower prices. Most types lost 2-4usc following quality. Weather is cloudy and wet. Crop quality is trending upwards.
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.