February 28, 2022
The C market saw a volatile week along with most other markets. After a long weekend, the market initially tried to rally but news of Russia’s acts within Ukraine sent world markets into a state of chaos for a brief period. Coffee dropped sharply as may other markets rallied. This was a function of asset allocation and risk adjustments by larger investment funds more than anything. Good volume traded as fund sellers found very willing industry buying into a ten-cent decline. The market closed unchanged today as things settled down though and, on the week, prices lost about 3%. The fund selling came after last week showed them at their longest since 2016 and, honestly, a bit of liquidation was not that surprising. Many other markets saw sizable gains given back today. Geopolitical conflicts always add a considerable amount of uncertainty and volatility to markets, even ones without a direct link to the region. The coffee story though is unchanged. Differentials remain firm and there is a general reluctance to sell from producers and middlemen. Consuming country stocks continue to erode. Any news out of origin is generally unfavorable for supply and of course, shipping issues continue. At this point, it seems unlikely that the market will really have a new “story” before at least the fourth quarter of the year when there will be some preliminary visibility to the next crop cycle. Between now and then Brazil frost season and continued macro volatility will likely keep prices from dropping too far for too long.
Technically the market ends the week in a negative stance. The decline has prices testing trendline support that the market used for the breakout to the highs. At this point, the low close is pointing to further declines short term but good support should be found in the 230 area. Overall, chart patterns continue to paint the action off the month’s high as corrective and point to new highs before long. At this point longer-term patterns present upside targets at 274 and 292. Would consider either a possibility and overall there remains considerable upside risk it seems. At this point would continue to expect that the market will not see prices substantially lower any time soon and consider the price you know better than the price you don’t. Declines such as the current one seem to present value for extending coverage in a measured fashion. Expect continued volatility with an upward bias for the months ahead.
Many of the same challenges facing the Tea world continue this week. Most producing origins are still in need of some rain. Some more than others. Indonesia is the one difference in that as they continue to see rainfall. Java is very wet, but crops are down at the moment. Argentina has seen some rain recently but still needs more. Crops are well below par and with two-thirds of the season done, they need to finish strong through May. Logistics remains concerning but not any more than the past month. Every part of the logistics chain is expensive but there have not been any increases of note recently. This piece is worth watching.
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.