Coffee Market  

The C market collapsed this week, seeing one-year lows. Prices fell roughly 5% on the back of massive speculative selling. Large funds and speculators cut their net long positions by 78% on the week, selling aggressively in a mass exodus. Much of that was spurred by last week’s collapse in the backwardation that has help the market for some time. The price move has loosened up some selling from origin as well. Differentials remain high but there is a bit more willingness to offer coffee on a slightly forward basis, which spurred a bit on physical business. Also, the Brazilian crop continues to develop well with good weather conditions. Much of the industry was attending the Swiss coffee dinner last week and discussing these developments. The tone almost sounded bearish coming from those meetings and the market seemed to reflect that. The industry was a good buyer on the way down though grabbing prices not seen in sometime. News outside of the market move was minimal. The Brazilian agricultural agency cut their figure for the 2022 crop (the completed one shipping now) by another half million bags but this was not particularly noteworthy. The macro picture was mostly a bit negative, but coffee was ahead of the pack in that regard. 

Technically the market ends the week in a bit of an oversold state, not surprising given the move. Some indicators are already hooking higher despite the weak close and would lead one to expect at least a modest bounce next week. Chart patterns are inconclusive. The candlestick charts seem to be running out of steam on the downside but have not shown a reversal yet. From an Elliott wave view the market is closing in on a measured equality target near 180 as well as major Fibonacci retracement levels of the entire rally to 260. So will be watching for signs of bottoming over coming sessions. While it would be very easy to get bearish the market watching the last few weeks action there really hasn’t been much change to the picture. We remain in a deficit productions cycle and while there is warranted optimism for the developing Brazil crop it will be a while before the market feels that actual relief. Obviously, that is assuming that the crop continues to develop optimally. So, at this point from both a fundamental and technical standpoint getting overall negative seems unwise. Would continue to view this activity as an opportunity to extend needed coverage on a measured basis, certainly through the early part of next year have risk off the table. Expect continued volatility for sure and would be wary of a sharp corrective bounce in the coming days. 

Tea Market

The week saw a return to a familiar dynamic as demand was good for better qualities but almost non-existent for the lesser grades. Production and weather remained favorable overall. As Argentine factories open for the coming season overall production looks good. The market has some catch up to play after last season’s drought reduced output though and overall pricing is definitely looking higher at the outset. Conversely improving logistics from Asia has seen some light pressure on prices. The coming weeks should prove interesting.  

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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