October 6, 2017 Coffee and Tea Market Report
The C market posted modest gains on the week as it sharply reversed a steady decline over the last two sessions. There are a few dynamics underlying the recent volatility. The market is very focused on the developing “bumper” Brazilian crop which is at the critical point of flowering. Rains are critical for this flowering stage and weather forecasts become market movers. After rallying through mid-September on dry weather forecasts the market declined rapidly as rains moved in. In actuality the pattern is fairly normal as rainy season basically starts in early October. Some forecasts seen over the last two days paint a drier picture out about two weeks and this is causing concerns for the flowering. So all of this is true and the rains are critical but the market is still weeks away from seeing how the flowering will progress. The price movement has been driven by specs and funds trading in part off of the forecasts and in part off of technical signals. Funds had pushed the June lows by getting over 40k lots net short. Into this week’s lows they were back to a net short of over 32k lots but hadn’t been able to break the June low. The reversal over the last few days has seen them start to cover once again. From a technical perspective the market was getting quite oversold and losing momentum into the lows. Yesterday’s new low for the move failed to gather steam and the market wound up closing above the previous day’s high. In technical terms this is called a “key” reversal and this sparked the fund short cover and smaller spec buying. Into the lows industry buying continued at a steady pace. The physical market remains rather quiet and differentials have been firm overall. For the moment there seems little reason for the market to break out of the range seen over the last few months. Volatility will likely remain high as the Brazilian crop progresses. Overall buying into the lower end of the range when available continues to seem like a prudent course of action. There remains little input from the macro picture. The Dollar has been steady over the last few weeks but lost ground today after a disappointing monthly employment report. Commodities in general have been quite mixed.
Tea cooled after a strong week last week. In Argentina, factories are being readied for the new season which should arrive in the next month. A couple factories will begin accepting leaf next week. Weather has been warmer than expected and there are reports of thunderstorms. Signs are indicating a timely start to the season but reports of red-spider infestations may cause uneven production in the start of the season. After a strong week last week, Kenya’s demand cooled. Prices were generally a bit easier. Crop quality appears to be improving. Malawi saw strong demand for whole leaf but greatly reduced demand for broken types. Crops are still lower than expected but are improving. Demand and pricing, followed quality in Sri Lanka. Lower quality types were neglected or sold at dearer prices. Northern and southern India Wesaw a gain it higher quality types which was balanced by a loss in lower quality types. Crops remain 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.