October 5, 2018 Coffee and Tea Market Report
Finally a different song to sing. The C market jumped a little more than 6% on the week, posting a 6-week high. The market is now up for three consecutive weeks (for the first time this year) and evidence is pointing to the long-term downtrend being complete after almost two years. The tone of the last few weeks has changed as focus shifted from the bumper Brazil crop to the more questionable Brazilian currency. The Real has been very weak over the last six months due to political turmoil and a weak economy. The Real has enabled Brazilian producers to sell into the continued C market weakness and this fact has kept large fund short positions at record levels. Over the last few weeks, the Real has stabilized as the Brazilian presidential election nears with recent polls showing conservative candidates in the lead. The coming weeks will tell the tale for the Real overall but the important factor here is that the change in trend has seen large funds start to cover their massive short position. At this point, they are still near record historical levels but if their conviction has truly changed then that could drop quickly. If they continue to cover the market could easily see nearby prices back into the 120/130 range over coming weeks. The physical side of the market remains quiet overall though differentials did ease slightly with the market rally. As Central American crops begin to flow in coming weeks this should help spark some activity.
Technically the market is really showing signs of a trend change for the first time in quite a while. Near term moving average are crossing higher and momentum indicators are strengthening. Buy signals are also being generated on a weekly scale. Seeing positive signals on both a short term and longer-term scale at the same time is also something the market has been unable to generate in a while. At this point would expect to see the market work higher to the above-mentioned 120/130 range over coming weeks. It would take a break back below $1 at this point to suggest the long-term bear is regaining control. For the moment would stand aside into strength but would view a three or four cent pullback as a buying opportunity.
Argentinian factories are prepping for the next harvest. All indications show that the season will begin in two to three weeks time. Weather is warm and it is starting to rain. Kenyan demand was high but at irregular prices. Brighter types and select brokens gained from 5-45 usc while most types less 5-10usc. It is warm and rainy. Certain districts are beginning to see improved yield but most are down. Fair demand is Sri Lanka. High growns eased 5-15 usc while small leaf types held steady or saw slight gains. Weather is windy with constant sun and shattered showers. Crops were steady this week. Good demand in North India at slightly lower prices- 1-2 cent decrease on average. Crops are fair. Weather is warm and rainy. South India had fair demand with the market being down 3-6usc overall. Weather is dry Crops are low.
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.