May 09, 2022
A rather quiet week ended with a bit of flash as the market dropped sharply today. Week to week prices dropped over 5% to a six-week low. Large speculators and funds were the main sellers after increasing their longs last week. There was no real news to spur this move though from a macro perspective most commodities did see some pressure on the week. The coffee story remains largely the same. Firm prices, little forward business. Focus on the Brazilian harvest beginning suggests that yields may see losses from last year’s frost come in closer to the low end of the 5 to 8ish million bags estimates. It is early to tell of course but this could spell a little forward relief once the harvest begins in earnest. At the same time weather watch will begin and temper any aggressive reduction in pricing, at least for a while. Otherwise really not much to talk about. The macro picture continues to provide volatility but no clear direction. The Us rate hikes this week seem generally well received though their impact on inflationary pressures will be slow to be felt.
Technically the market ends the week in a negative stance on both short- and longer-term scales. Prices closed well below all major trendlines, and that structure is turning toward negative as well. It was the lowest close in over six weeks and chart patterns are pointing lower short term. Basis the now active July contract Elliott patterns see potential toward 189 over the coming weeks. That said there is no indication at this point that a major reversal has occurred off the February highs. Would continue to view this action as corrective overall and certainly see prices toward 200/180 as good value to extend coverage into next year. For the moment, some patient scale buying seems appropriate. Expect volatility to remain high of course but for the moment would try to be as disciplined as possible.
We continued along the same relative path this week across most origins. The demand remains erratic and is still following the quality, so many of the lower qualities are remaining unsold. Production is looking strong across Asia and East Africa, although the quality is declining a bit in Asia. Demand remained steady with Indonesia and Kenya both seeing 83% sold while Malawi’s firm rates saw demand fall to the tune of only ~50% sold. There is still a lot of uncertainty on the macro side with the Ukrainian conflict continuing with no signs of slowing down that is sure to directly impact fertilizer and fuel costs and it will continue the indirect effects on the already strained supply chain.
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.