September 28, 2018 Coffee and Tea Market Report
The C market ended the month on an up note posting its first positive month in the last four. On the week, prices gained about 2.5% with all the gains occurring with today’s rally. The recent action in the market has been increasingly focused on macro factors. More specifically on the Brazilian Real. The Real has been quite weak against the US Dollar recently (two and a half year lows) and this has kept pressure on the market. The weak currency has enabled Brazilian producers, having recently harvested a record crop, to continue selling and still be profitable despite the C market weakness. Focus on the Real is hypersensitive now ahead of the Brazilian presidential election coming in the next few weeks. The main point of this focus is that the election could see the Real move sharply in either direction and if it reverses recent direction, it could take the producer pressure off the market. That, in turn, could be the spark that pushes record short Funds to cover their positions (at least partially). Once funds turn to buy, the market is expected to rally sharply. They continue to hold short positions equal to 20% of the annual global production. There is little else to talk about. Brazilian weather has normalized in recent weeks and rains have seen the first early flowerings for the next crop cycle. Central American harvests will start in the coming weeks also but at this point, there is little to talk about. Physical business remains slow with the industry well covered and forward differentials firm.
Technically the market posted some positive signs. On the monthly scale, a few buy signals were generated and a reversal pattern is visible on the candlestick chart. Near term, indicators are also positive. Near-term chart patterns are still inconclusive. This rally should be good for a test toward at least 105/106 but even that could still prove a minor correction. There is a lot of work to do on the chart still to confirm a major reversal of the long term down trend. For the moment would not be a buyer into strength but would continue to view lower levels as good value overall.
Argentinian factories are prepping for the next harvest season, which begins next month. Weather is warm and it is starting to rain. Kenya saw better demand this week. Brokens gained up to 40usc but this was balanced out by similar losses in other types. Weather is getting warmer and there are scattered showers. Crops are still low but trending upwards. Fair demand is Sri Lanka. High growns eased 5-10 usc while BOPF gained in similar margins. Weather is windy with constant sun and shattered showers. Crops are easing. Good demand in North India. CTC & dust eased while Orthodox types increased in demand. Crops are fair. Weather is warm and rainy. South India had mixed demand but more or less netted even for the previous auction. Weather is cool and cloudy. 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.