November 07, 2022
Prices “stabilized” so to speak this week as the market spent the entire week in positive territory though prices swung wildly in a twelve-cent range. Overall, we were up 2% once the dust settled. Funds and larger speculators sold aggressively once again and have now moved to their largest net short position in over two years. The volatility was added by a chaotic macro week as all markets gyrated on a new US federal reserve rate hike (the 6th this year) which was followed by very mixed messages around the potential for more. Industry buying was again evident as the market remained near one-year lows. There remains little physical activity. Some trade houses are revising their figures for the last Brazilian crop even lower as producers remain sidelined. The developing crop continues to see favorable weather overall and the market continues to underscore the need for the crop to indeed be a bumper one. Overall, there have been a few flurries of business at lower differentials than have been seen recently but prices remain firm overall. Again, the macro picture lent some volatility overall but in the end commodities in general were higher on the week.
Technically the market ends the week in a mixed state. Indicators are turning higher from an oversold position. Chart patterns are suggesting a large corrective formation off the year’s high should be near completion but, so far, show no clear signal of a major low in place. Overall, would expect continued volatility near term given the lack of fundamental news and the high speculative interest. Near term the next significant event will be the expiration of the nearby December C market contract over the coming weeks. This has already lent a lot of movement to prices over recent weeks. At current levels would think extending coverage through the first half of next year is logical. Otherwise, would hold back and wait out the crop development as much as possible. The market remains vulnerable to near term price spikes but would try and remain patient over the coming few months.
Factories have started to open in Argentina marking the beginning of the crop season. The winter rains were steady, but it has been dry over the past couple of weeks and many expect the crop to be delayed slightly. Elsewhere things have remained the same as they’ve been over the past few months with demand following quality and lower quality teas continuing to pile up. The unfortunate situation in Ceylon has led to good demand for all other Orthodox markets but many are worried about the long term effects the situation will have for future crop cycles. One bright spot seems to be the logistic situation worldwide as freight rates continue a slow slide down towards pre-Pandemic levels and port congestion in the US has lightened a bit.
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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