November 21, 2022
The C market saw an eighteen-month low this week as speculative selling continued to dominate the trading activity. Prices lost more the 7% on the week as larger funds and speculators continued to feast on the negative momentum ahead of the December contract expiry. Momentum was generated by continued liquidation of the December contract as it moved into notice period this evening. Part of the liquidation was generated by last minute producer selling as they waited in vain for a bounce but also there was the continued correction of the market “structure”. The spread between the December and March contracts traded to almost a four-cent discount today (which is much more “normal") after trading to more than a ten-cent premium just six weeks ago. On the fundamental side, the developing Brazilian crop continues to see favorable conditions overall (aside from the occasional hailstorm), but concern continues to grow that the last crop was even smaller than originally thought. Producers have been very unwilling to sell and this week the Brazilian government agency Conab, lowered their estimate of the 22 crop by another 3 million bags. This points to the supply demand deficit this year being even wider than originally expected and puts increasing pressure on the developing crop to make up the shortfall. Physical business continued quiet as the flurry of activity seen when the market first accelerated lower now seems a distant memory. Differentials remain off their highs but there is very little willingness to sell from producers or exporters. Industry interest to buy has calmed as well with most seemingly extending coverage a few weeks ago. Little direction from the Macro perspective. The US Dollar stabilized after falling sharply last week. The Brazilian Real continues to be choppy post-election but within a rather modest range. Commodities in general have been choppy in recent weeks.
Technically the market ends the week quite oversold. That said though there is still no sign of a bottom to date. The decline has well exceeded pattern-based downside targets. This is not uncommon, but it has been extreme on this move. At this point the only move to make from a technical perspective is to wait for a bounce of note. Once that begins it should shed some light on whether this decline was exaggerated by fund involvement, again not uncommon, or has the market truly but the bull behind it. In either case would view prices in the mid to low 150s as good value to at least begin averaging forward purchases past the beginning of next year. Expect continued volatility near term as the market moves past the December contract expiry before perhaps some calm settles in for the holidays.
Not much to talk about this week. Argentine factories are opening but at a slow pace so far. Weather has dried out but there are more rains in next week’s forecast. Rains in many origins seem to have production slower overall. More of the same as lower grade teas continue to move very slowly and inventories continue to build. While freight rates from Asia have improved dramatically there is no indication that South America will enjoy the same impacts anytime soon. Overall, things remained steady again 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.
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