February 14, 2022
The C market surged this week touching a fresh eleven-year high. Prices traded in a twenty-cent range and settled up 4.5% despite retracing eight cents to end the week. The buying was from the industry as option expiration and first notice day forced some reluctant buyers to the table. The market had broken out of a chart formation that generated some technical buying as well. Resistance remained light as producers continue to hold onto unsold supply. Larger specs bought and sold on the week and their position changed little overall. There remains little news and the market has been focused on declining exchange stocks, which are at twenty-year lows at this point. Differentials continue to remain immune to the C market rally as concerns over supply and shipping keeps sellers very reserved. Inflation continued to provide a supportive tone from a macro perspective overall though coffee seems to be marching to its own drummer at this point.
Technically the market ends the week in a mildly overbought stance. The rally occurred on the back of a classic pennant formation breakout though and the overall trend remains strong. At this point, any day could see a correction, and a sharp one seems likely. Would consider having any buying ideas working as there will be considerable pent-up buying into any decline at this point and a retracement could prove short-lived. Prices toward 240 would seem good value at this point. Bigger picture, chart patterns present targets above at 279 and 292, neither seems impossible at this point. As the market remains void of any meaningful fundamental news would expect high volatility and an upward bias to remain in place over the coming months.
A selective week across tea auction centers this week. A slightly smaller auction was seen in Kenya this week with 189,934 packages (12.5 mill kgs) offered. Overall, 13% was unsold which is slightly better than the previous week. Most of the brightest and well-made teas had higher demand while others were neglected. Crops are down in most regions but there are useful rains in the area. Argentina received some rain this week but much more is needed to have the season rebound. There are some in the forecast, but more is always needed. A proposal for a “floor price” has been introduced in North Indian tea centers. It seems to mimic the idea of a “reserve” at car auctions or the lowest price that the seller is willing to part with the product no matter if the current bid is above that cost. This was introduced in Mombasa last year and production fell by 5%. While there are other factors that could impact that number, it stands to reason there is a correlation. Logistics remains an issue across the world with no end in sight. This may be the norm for the time being.
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.