February 07, 2022
The C market saw another week of choppy activity but familiar prices. Overall gains of 2.5% were seen as the market rebounded and touched two-week highs. Once again fund and speculative buying were the driving force into modest producer selling. Selling appeared to increase into the 245 area and lent to a wide range today. Overall, though lagging industry buying once again provided enough support to prevent anything more than a modest sell-off. The story remains largely the same. There is little fresh news, production issues remain a concern in Colombia for the mid-year crop, labor is a concern in Nicaragua as the harvest progresses, Brazil is moving into a critical maturation period before the next harvest. Nothing is seeming to offer any relief to very firm differentials at this point. Freight delays and ever-higher costs continue, and no origin seems immune. All in all, very little to pressure prices and for the most part, the market appears to be consolidating and waiting for the next bullish event. The macro picture provided a little downward pressure today as the monthly US employment report came out better than expected and prompted a wave of selling across commodities. That pressure proved short-lived though.
Technically the market ends with a positive short-term tone though the sideways consolidation has signals weak at best in either direction. Chart patterns continue to paint a positive picture longer term but still show some downside potential near term. Another “hanging man” formation was seen on the candlestick chart, which was the same formation seen at the January high preceding a fifteen-cent decline. Elliott wave patterns continue to see potential toward 220 or a little lower. All this said the main point is that all these patterns continue to appear corrective off the December highs and a break of those highs seems likely over the months ahead. Would continue to try and keep coverage stable and look to any notable declines to extend at a measured pace. News highs seem likely from a technical perspective and any fundamental news is unlikely to be negative for the coming six months or more. Historically speaking prices above $2 are hard for the market to maintain but the one exception was a two-year period around 2010-12 as the market was recovering from supply deficits that were very similar to what we are currently dealing with. It is seeming likely that we won’t see prices below that level for most, if not all, of this year.
A slower week across the tea world this week. In Kenya, there was a large auction but an increase in outlots. Of the 194,249 packages offered, 15% were unsold. This is a decrease at the 11% we saw last week. Prices are following quality as the best and brightest teas are selling higher and poor-quality teas are being neglected. For the most part, the crops are beginning to dip slightly. There was a cyclonic rainstorm to hit parts of Southern Africa that has caused major power outages and road closures across Malawi. On the other end of the spectrum, Argentina has officially announced a drought in Misiones. Plants that should be budding and ready for harvest are dying. The extreme lack of rain is seeing major impacts. Many growers are expecting the harvest to be around 50% lower than a normal harvest year. The expectation of rain came and went. In many areas, without a single drop. Rain needs to come soon and in large quantities. Watch this space.
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.