September 7, 2018 Coffee and Tea Market Report
In familiar fashion, the C market pushed a fresh twelve year low early on but ended the week on a modest plus sign. Really nothing new to the activity. Large funds again added to their net short position and remain at record levels. Industry buying continues on a scale down basis as users extend coverage further and further at these low levels. Physical business remains spotty though there has been decent action on the spot market for Brazilian coffee currently in consuming country warehouses. Shipments out of Brazil continue to be fairly substantially delayed and spot inventories are being drawn to buffer supply. The record Brazil harvest is complete at this point and focus will now turn to the development of the next crop, though it will be about a month before anything significant is seen. The low C market prices continue to stress producers. A strong US dollar has mitigated some of the price decline but overall prices remain below cost of production for many. The low prices are starting talk of skipped fertilization cycles and the like. This generally is the beginning of a long slow process of decreased production that would eventually lead to higher prices. Colombia and now Honduras have announced funds being established to help producers battle the low prices. This is a welcome sign but execution and distribution of these type of plans often does little in the short term. Hopes are that they can prevent the decline in crop care long enough for the market to return to levels that are more manageable. The outside world remains little help to the market. The US dollar remains strong amid continued trade war headlines. The Brazilian Real remains weak amid political turmoil that saw a leading presidential candidate stabbed this week. Elections are next month and that would seem the earliest chance to stem the Real’s volatility.
Technically the market remains within the long term down trend. Short-term indicators and chart patterns are once again hinting at a possible turn higher. As stated many times over recent months though, a lot needs to happen to confirm any rally as something more than just a small correction. Right now, the current bounce suggests another five cents higher will be seen. Beyond that, the jury is still out. Would continue to try to focus on long-term value and buy patiently into continued weakness.
Argentinian factories are closed for their annual maintenance programs. Set-up for the next season is approaching. Kenyan demand was down this week. Most types lost some margin with brokens falling the furthest- up to 35usc. Weather is cool and cloudy. Crops are low. Sri Lanka showed solid demand this week. Pricing on high-grown types fell around 30usc with some more expensive types dropping further. Over all the market eased 5-10usc. Weather is windy with showers. Crops are only a touch lower than what is seasonally expected. North India continued it steak of high demand showings. Most types held steady with the exception of brown leaf fibrous type who saw some losses. Darjeeling teas had notably good demand. Weather is cloudy with showers & crops are fair. South India displayed good demand with most types gaining in the neighborhood of 5usc. CTC types were an exception but only lost a few cent. Weather is cool with scattered showers. 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.