Coffee Market

Weather fears (or lack thereof) continued to provide the C market with a wild ride this week. Prices exploded on Monday and continued higher Tuesday as the potentially cold nights approached. Wednesday and Thursday then saw all the gains given back as temperatures did not dip as low as expected. Friday was very choppy trading a ten-cent range as positions were squared and the dust settled. In the end the market settled up less than two cents on the week after surging more than fifteen initially. If this was any indication, we will have a long couple of months ahead of us as winter in Brazil progresses. I think that one headline this morning sums up what we have to look forward to, “Despite above freezing temps, there are some frost reports in coffee regions”. There were a few of these headlines, none citing any damage (yet) and to be fair temperatures certainly vary of over the entire production region. Still, they underscore the intense focus that will be on the weather after last year’s back-to-back frosts. Emotion and volatility will remain high for sure. The season is long and will feel even longer for sure. Converse to this chaos, there is growing optimism about the potential for the next crop. Early surveys are citing healthy trees and good vegetative growth. The next crop should be cyclically higher and if all goes perfectly some are saying it could very well be a new record. Obviously, this would be a welcome development from a supply perspective. Obviously though it will be a long time before any real assumptions could be made, but even the optimism is welcome. Otherwise more of the same on the physical front. Macro volatility continues as well. 

Technically the market is very mixed and after this week’s action that is not at all surprising. Despite all the movement the market is right in the middle of the last eight week’s range. Stepping back to look at weekly indicators to try and quiet some of the noise paints a slightly more negative picture and chart patterns continue to see a bit more downside potential within the context of a larger corrective move off the year’s highs. Would continue to see potential toward 190 short term. Overall, would remain as risk averse as possible over the coming months and continue to see prices toward two dollars as good value through the early part of next year. Volatility will remain high, and the larger risk would be to the upside as Brazilian winter progresses. 

Tea Report

It was a poor-quality week overall with continuing rains impacting quality in India and East Africa, although the weather should be getting drier in Africa very soon. Production is healthy in most origins with Asia seeing the last of the First Flush. There was an abundance of lower quality teas, but the demand just isn’t there with most exporters waiting for the Second Flush qualities. There are a number of macro issues creating additional havoc on an already strained supply chain. Sri Lanka’s default has caused significant pressure on the Rupee which has many concerned for not only the market but also the citizens there who will no doubt feel the rapidly increasing cost of living. The rumblings out of China also continue with entire cities being locked down due to the ongoing COVID outbreak which has made it increasingly difficult to correctly price freight for forward contracts. 

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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