December 29, 2017 Coffee and Tea Market Report
The C market managed to sneak its way quietly to a 5% gain on the week. Volume was light all the way as many remain in holiday mode. Smaller specs seemed to be going a bit long in anticipation of the new year, which should bring index fund buying related to their annual rebalancing. Larger spec funds remain net short at record levels and their eventual covering could be explosive for the market under current conditions. This is what smaller specs are likely betting on. Industry buying was much lighter this week as that remains focused on recent lows. While it was quiet overall it is becoming increasingly obvious that the coming Brazil crop is critical. Nearby supply is very tight and differentials continue to firm. Brazil is coming off a cyclically lower crop and has seen in country stocks drawn down considerably. Until the new crop starts to flow supply will remain tight. If the crop comes in at the bumper levels currently forecast all should be okay but the market really seems to need the big crop to restore stocks and satisfy demand. Rains in Jan/Feb will be closely watched for sure to judge the overall yield. On the year the C market was down 5.5% overall and one of the underperforming commodities in general (see interesting graphic on page 2 in the PDF).
Technically the market ends the week in a positive stance. Both short and longer term indicators are positive. Near term chart patterns are a bit inconclusive as to whether a major turn higher is at hand or if this is just a minor correction. A minor correction could easily test 130/135 basis the nearby month, so there should be additional upside short term. If this is something more substantial a push toward 150 or even 180 could be seen over the coming months. Time will tell. For the moment would continue to view recent lows as good value but would not be buying into strength just yet.
Tea markets saw solid demand with prices following quality. The Argentinian season is ramping up. Crop production is healthy. Kenya improved demand but rates stayed dearer. Weather is remains dry but it does not appear to have affected the auctions offerings. Sri Lanka experience steady demand at fair rates. While individual lots old at differing prices the auctions balanced at large. Weather is wetter than we would like to see but thus far crops remain unaffected. Indian auctions displayed solid demand. Prices closely followed quality. Crops production is on par with what is expected this time of year.
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.