Coffee Market  

The C market posted modest losses week to week and saw a sixteen-month low in the process. Larger speculators continued to pressure the market and the selloff was aided by the nearby contract (December) option expiry today. Industry buying continued but on a more measured pace than over the last few weeks. After living hand to mouth for many months roasters have bought considerably over recent weeks and are now looking to buy into new lows only. There remains little news. Hailstorms in Brazilian growing areas generated a buzz early in the week and pictures of golf ball sized hail sparked fears of damage to the developing crop. At this point survey reports are saying no notable damage occurred. It did underscore however the importance of the crop and how long we must go before it can really help the under supplied market. Other origins remain quiet as well. Physical business quieted again after a flurry of activity over the last few weeks. Differentials have fallen from highs certainly, but they remain firm in a historical sense. The willingness to sell from producers and the middle of the supply chain remains tentative. Many industry participants are gathering at the Sintercafe event in Costa Rica at this point. It will be interesting to see the mood coming out of it. The Swiss coffee dinner last month set a bearish tone for many. The macro picture was rather mixed from a commodity perspective. The US dollar continued to fall on further inflationary data. Global recession fears are keeping things choppy.

Technically the market ends with a weak positive bias starting to materialize. There was a fresh sixteen month low early on but the market closed higher that day, which is a reversal signal overall. On the candlestick chart as well, the new low occurred on a bullish engulfing day which hints at a reversal as well. That said, today’s performance was lackluster at best. From an Elliott wave perspective, the decline has overshot targeted levels, which is not terribly unusual for coffee when the volatility is high. The decline has satisfied all requirements for the large corrective decline that began off the year’s high and at this point would be watching for signs of a reversal from this perspective as well. So far, the activity off the week’s low looks impulsive, which could target a quick return toward 200/210. At this point would continue to see current levels as good value through the first half of next year. Beyond that would try and remain patient, though would consider layering into additional coverage below 150. Expect volatility to remain high over the coming weeks.

Tea Market

The mountain of lower grade teas continues to pile up across multiple origins and specifically in Ceylon and India as demand continues to follow quality. Production looks to stay healthy everywhere except Ceylon, albeit Argentina is off to a slightly slower start than normal. Winter rains helped but the recent low temperatures and lack of precipitation has many wishing for rains soon. Ocean freight rates has continued to slide out of Asia while we are still seeing inflated costs and a lack of capacity out of South America. Overall, things remained steady this week with little news on the macro side of things. 

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.