June 06, 2022
In what has become a familiar story in recent weeks, the C market moved a lot during the shortened trading week but closed little changed overall. Prices gained a little more than 1% week over week, but the market did trade to a four-month high. Activity was fairly light from a volume perspective as industry players remain sidelined. Speculators continued to provide much of the interest on both sides of trading. Producers remain sidelined for the most part as they are either between crops, or in the case of Brazil, well positioned to wait out higher prices still. Physical business remains very light and sporadic overall. Differentials continue to firm despite the market’s gyrations. There remains little interest in selling forward. Brazil’s harvest is progressing though is behind last year’s pace so far. Weather has been good for the harvest so far, as it has been dry. There is no dangerous cold in the longer-term weather forecasts at this point. Colombia continues to struggle with excessive rain, and some are starting to suggest it may impact the coming main harvest. Production estimates for the year continue to creep lower from most sources. Forward freight concerns are evident as well as pricing remains locked at high levels through at least the beginning of next year. The macro picture continues to provide occasional volatility without clear direction.
Technically the market ends the week on a mixed note. Indicators are hooking lower from positive territory with a few sell signals issued. The week was more significant from a chart pattern perspective. A negative shooting star was seen on the candlestick chart which suggests the recent rally has run out of steam. From an Elliott wave perspective, a “b” wave of an ongoing corrective pattern appears complete as well. This would suggest that a break below 229 could accelerate toward 190 in the coming weeks. Of course, these are technical signals and a change in the weather forecast could easily put the market at new highs, so caution remains necessary. For the moment would continue to target the 200/190 range as good value to extend coverage through the early part of next year. Otherwise, would try to remain patient in the face of continued volatility.
Much of the same this week with weak demand overall and quality was slack as well as many buyers are leaving the poorer quality teas at auction. North India has been a bright spot with good quality and production being seen so there is a positive sentiment that total production in 2022 will be at similar levels to last year with North India helping to compensate for down cycles in other origins. The elephant in the room remains the question of what forward demand will look like given the current and specifically what will become the new normal out of Russia and parts of the Middle East. It does look like global demand is shifting towards higher quality teas overall so it remains to be seen how quickly the market will shift to meet these demands from the market.
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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