March 07, 2022
The C market saw yet another volatile week unfold. Prices lost 6% and touched a two-month low as speculative long liquidation continued. What started as a risk of reaction to the Russian invasion of Ukraine has continued on technical signals being issued as the market declines. The macro picture has actually seen commodities strengthen overall but that has been focused on energies and metals and scattered agricultural commodities directly affected. The US dollar has surged to two-year highs but that has not seemed to spur any producer selling. The decline has found very willing industry buying on the way down. There remains little coffee news. The Brazilian crop has seen good weather overall in the late stages of development. Focus will soon turn to colder weather with frost season taking renewed focus after last year’s events. Otherwise, the is little to talk about. Physical business remains hand to mouth for the most part. Differentials remain firm though they have not increased further with this decline. There have been no notable improvements to the shipping difficulties. In short, the 15% decline seen over the last few weeks was not related to any coffee news. Would expect volatility from geopolitical events to continue near term.
Technically the market is negative near term and even a little oversold. The momentum seen after breaking a significant uptrend line has been impressive but overall, this decline appears corrective within the larger uptrend. Minimum retracements for the move off last year’s lows still lie below the market (197) and the market should find good technical support into the 210/200 range. Given the overall fundamental backdrop would continue to view declines such as these as good opportunities to extend coverage on a measured basis. New highs remain very possible over the months ahead.
Many challenges remain the same across the tea world, but there are hints of new ones emerging. It was another inconsistent week with demand and pricing across the world. Many auctions saw erratic pricing with an easier tone as the world awaits sanctions against Russia amid the conflict in Ukraine. “Russian types” saw decreased in Kenya this week. There was decent demand overall in Kenya with 15% of the 192,659 packages unsold at the final hammer. There is plenty of rain in African growing regions and they are expected to see “rush” crops near the end of the month although crops figures remain down. Argentina is still in need of rain but there was some this week. There looks to be more in the forecast that could come to save the entire season. Logistics is stagnant for the moment but there could be trouble on the horizon. Many ocean carriers are refusing to carry any cargo to Russian ports for safety reasons. A large freight forwarder has followed suit. This could cause larger issues without Russian and Ukrainian interest at auction and the availability to the average consumer. Tea would be allowed to be imported through sanctions due to its label as basic foodstuff. Rising costs of fuel may also provide its own set of increases to general rates. Watch this space. It could get interesting.
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.