January 12, 2022
The C market continued its volatile ways. A fresh ten-year high was posted early in the week on another wave of larger speculative buying which forced further industry short covering. Producer selling remained very light, offering little in the way of resistance. Once the buying thinned though there was little to support prices and the market retreated, accelerating lower into week’s end. Late selling was mainly focused on speculator long liquidation. There remains little fresh news in the market and prices are sensitive to trading emotion. On the physical side of things there was another flurry of spot business as the market continues to compensate for delivery issues. Consuming country stocks continue to draw down around the supply chain slow down. What coffee is flowing out of central America right now continues to struggle with container shortages. Brazil crop tours continue, and weather has been drier again. It will still be a few weeks before observations filter to the market. Differentials remain firm overall and forward business is still light and sporadic. The macro picture continues to provide mixed input. Today saw inflation figures hit a forty-year high and commodities in general reacted positively (aside from coffee of course). The US dollar remains stable overall. Would expect increased volatility from this direction over the coming months.
Technically the market posted a negative week for the first time in the last six. Indicators are negative across the board at the moment. That said the significant trendline held support for the moment (see chart below). At this point after a fresh ten year high the lower close for the week does suggest that the rally is running out of steam, at least temporarily. Some follow though early next week could spark a sharper decline. Chart patterns are pointing lower as well though, so far, there is no indication of a major reversal despite the market coming quite close to long term measured objectives near 255. At this point would expect that there is pent up demand that will dampen a real acceleration lower and new highs remain always possible at the moment. Would continue to view a push toward 225 as good value for needed coverage. Beyond that would expect that it will still be some months before the market settles down into the 180/210 range for some time. Substantially lower levels seem unlikely for the year ahead.
Quality remains the prominent driver of buying across tea centers this week. 177,590 packages were offered in Kenya with 14% left unsold. Most of the well-made teas had increased demand while the plainer types held to the end. Overall buyers were selective. The same could be said for Indian tea centers. Good or stable demand but many buyers were selective of quality. Northern growing regions has started to cool off and production is falling following seasonal norms. The South saw good demand as well. Heavy showers were seen in growing regions, but crops are also decreasing. Argentina needs rain. La Nina conditions continue, and humidity remains low. If the green intake hopes to rebound, the weather needs to change. Watch this space.
For further insight and analysis on current coffee and tea market data, take a look at the weekly report from Westrock Coffee commodities team.