April 18, 2022
The C market ended a holiday shortened week slightly lower as prices lost a little more than 1%. That said, it was another volatile week as prices traded in a sixteen-cent range. Early strength on the back of fund buying saw one-month highs but those gains were reversed quickly on what appeared to be macro driven selling on the back of surprising inflation data. Industry participation was minimal in both directions as prices remained within the broader range of the last few months. There remains little “coffee news.” Physical business remains sporadic and differentials very firm. The industry did see its first mass in person event over last weekend as the Specialty Coffee Association held its annual convention. Attendance was strong. The talking points that seemed most active were the same we’ve been mentioning for many months now. Continuing supply chain delays and high costs, the only consensus seeming to be that things likely won’t get any better this year. Overall supply, generally there is some optimism over the next cycle in Brazil but that won’t really be quantifiable until later this year. Debate about actual demand, which is always hard to quantify. So familiar themes debated in person rather than on screen, at least that was a refreshing change. From a macro perspective inflation at forty-year highs was the main driver, though why that drove a negative move in coffee while most commodities were up on the week is a little hard to explain.
Technically it was a negative week as short-term indicators issued a few sell signals. The scope of the decline pushed a few chart patterns into a more negative stance as well. While the longer-term perspective still suggests higher levels there is some opportunity to see prices test recent lows over the coming weeks. Would expect volatility to remain high of course and given the fundamental background would be cautious about getting overly negative but a test of 210 and possible seeing retracement levels toward 197 is possible over the coming weeks. Would certainly view such levels as good value for extending coverage through the end of the year. A broad range is likely to develop over the months ahead and these levels would certainly seem to be the low end of that potential.
The same challenges face the tea world this week but not very many new ones. Production continues along seasonal norms while quality remains king at auction. In Kenya, there was a fairly large auction with only 13% left unsold. Bright and well-made teas were met with good demand while others met selective demand. New season teas are starting to come to auction in Northern Asia and rain has come to South Asian origins. For the most part, production is following what was expected. In North India, the crops are coming a week or so late but are with good quality. Argentine producers are holding onto the last bit of the season, but weather is cooling quickly. Rain has come to Misiones and that is helping for the moment. Malawi is also in the same boat as Argentina with crops declining as the weather cools. Pruning will more than likely start soon for those Southern Hemisphere origins.
For further insight and analysis on current coffee and tea market data, take a look at the weekly report from the Westrock Coffee commodities team.