January 5, 2018 Coffee and Tea Market Report
The C market saw a five week high as last week’s strength carried over but prices then got quite volatile and traded back and forth in a five cent range. A large sell order saw the market retreat quickly from the high early on as it appeared that large spec funds were defending their short position. The large fund short remains the only real feature in the market at this point. They have likely covered a little of the record seen last week but overall the position remains very large. Smaller specs have been buying in anticipation of large scale short covering but are nervous and adding to the volatility. The annual Index fund rebalancing begins on Monday and this should bring about ten thousand lots of buying into the market, though this will be spread over five days. The market has built a bit of a technical base to work off of at this point but if the funds don’t start covering more aggressively then the recent strength will probably wane quickly. Chart patterns continue to see an opportunity for a push toward 140/150 near term but overall a drastic move out of the last six months range seems unlikely barring a new development. The physical market remains very quiet with differentials firm and the industry well covered. Brazilian weather will come to the forefront again in the coming weeks as the crop enters the maturation phase. Rains are needs to cherry development and yield potential. Global supply and demand should see a bit of a surplus on the year if everything develops as expected. The macro picture has seen the Dollar remain weak overall. Commodities in general have seen some strength over recent weeks, some of which can likely be attributed to the pending Index activity.
Overall would continue to expect the broader range to hold with recent lows representing good value. At this point would stand aside into strength and let the fund situation play out.
Tea markets saw solid demand with prices following quality. The Argentinian is running smoothly. More consistent rain is necessary to maintain crop production but thus far yield has not been affected. Sri Lanka had fair demand High growns jumped 5-25usc while low growns fell 2-15usc. Weather is sunny with scattered showers. Indonesian prices were up 5-10usc. Weather is warm but cloudy with showers. Both south and north Indian suction had decent demand but prices fell following quality. Weather is dry end the east and cold in the west. Crops are healthy but production is beginning to slow as 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.