March 23, 2018 Coffee and Tea Market Report
The C market closed little changed week to week. Once again early strength disappointed and we saw gains erased into the end of the week. A general sense of apathy prevails from the industry. Last week’s National Coffee Association conference saw a general consensus on overall supply and demand for the coming year. There is ample coffee coming along it seems to alleviate nearby tight supply and replenish stocks somewhat. This outlook is helping the complacency. There was some concern about the Brazil crop to follow the currently developing bumper crop, expected to be cyclically lower and the degree of stress on the trees from this year’s production. It is very early though and focus is firmly on the crop at hand, which is developing well. Until that crop starts to flow in a few months though the nearby supply remains rather tight. Colombia is seeing delays in the mid-crop harvest as well and overall, differentials remain firm. Physical business has been picking up a little but is focused on the second half of the year. The macro picture saw both the Dow and the Dollar under pressure after news of trade tariffs being imposed on China by the US. This did not have the usual positive impact on commodities though as a general “risk off” tone prevailed. On the week funds continued to add shorts in coffee though, reaching yet another record.
Technically the market saw an outside week lower overall and the near term trend remains negative. An inverted Hammer formation on the well watched weekly candlestick chart is the latest signal of a possible upside reversal but recent memory suggests a large grain of salt be taken with it. A reversal higher remains possible at any point given how far the decline has extended and the possible fuel of the fund short makes it potentially explosive. However until a clear low is registered though would remain cautious against getting too excited. Continue to see value into lower levels but would still not buy into strength at this point.
It seems the weather in the tea world is in order. The areas that are supposed to be dry; it is dry. The areas that are supposed to have rain; it is raining. Although it is beneficial to see rains in East Africa since they are a little late and South India could use some rain. East African teas continue to improve which is driving down the demand in Kenya. Prices followed demand easing anywhere from 20-30usc as this was the smallest auction in the last 30. The new season is right on the horizon for the Northern hemisphere as spring is right around the corner. The Argentine season continues, as rains are steady with warm weather. Indonesia saw a slight dip in demand as well as seeing 18% unsold. While these origins are finishing their seasons, the northern hemisphere is gearing up for theirs. Vietnam is starting to see spring plucking, as well as the Assam and Darjeeling regions of India are seeing their own seasons start.
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.