July 18, 2022
The C market saw a very volatile week once again and was never in positive territory. Prices collapsed more than 9% as they fell below $2 for the first time since last September. The story was familiar though, large funds and speculators were the driving force behind the selling pressure. Long liquidation from the larger ones and short selling from the more nimble players. Heavy volume traded as industry buying flooded in as new lows for the year were seen. All of this was aided by a macro picture that saw money flowing out of commodities after back-to-back inflation reports came in higher than expected. Volatility reigns supreme across all markets at this point and will certainly continue for the near term. There remains little to discuss in the way of actual “coffee news”. The Brazil harvest is progressing at a slightly delayed pace and weather has continued to be benign. Concerns continue to grow over potential decreased supply out of Colombia as excess rains are expected to impact the main crop’s development later in the year. Overall, the fundamental picture seems in contrast to this week’s activity and would limit downside expectations overall.
Technically speaking the market ends the week in a negative stance though is showing signs of being oversold. The decline continues to align with expectations from chart patterns being watched over recent months and prices are nearing a targeted level near 190. Overall, the decline from the year’s highs continues to appear to be a broad correction. At this point would expect a little more weakness but overall would expect the market to settle into a broad range for the coming months as the supply situation develops. At this point would expect that needed coverage has been taken into this week’s lows. Despite the decline, extending past the first quarter of next year does not seem a pressing matter. Would try to ride out continued volatility from the sidelines if possible.
There was a very evident shift in seasonal quality this week across most markets. There is concern about the producers of these lower qualities and their ability to continue in the future with the surging inflation and logistics issues continuing to raise cost of production. We are seeing many producers begin to shift to other crops which should help balance the supply-demand equation overall but that doesn’t mean there won’t be hardships along the way for many producers and buyers alike. Ceylon has been in the news this week with the protests and governmental shifts happening, but tea has been deemed an essential business that benefits from fuel restriction exemptions which has acted as a buffer from the turmoil happening inside the country.
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.
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