Likely shortfall in global tea crop good omen for prices – John Keells

Friday, 20 April 2012 00:01 -     - {{hitsCtrl.values.hits}}

Commodity broker John Keells Plc said yesterday that the global production of black tea was heading towards a shortfall in the first half of 2012 due to the prevailing dry weather in major tea producing countries and this will help stabilise prices at remunerative levels.

It said worst ever drought in fifteen years in North India has impacted on crop intakes with an estimated drop of 50 – 60% to end March 2011.  It is reported that Assam and West Bengal together will record approximately 20 Mkgs to end March 2012 as against 46 Mkgs recorded for the corresponding year of 2011. It is also reported that shortage of tea in India and a robust domestic demand will push up prices in the country.  

Abnormal weather conditions in Kenya too have reduced tea production. Kenyan tea crop dropped 12.9% in the first two months of the year compared to the corresponding period of 2011 and is likely to end the first quarter at a 15% deficit once again due to hot and dry weather coupled with repeated frost attacks in February.  Although rains have come in late, it will be difficult to re-coup the crop loss, with Kenyan tea board projecting a drop of 5% by the end of the year.

Sri Lanka tea production appears to be heading in a similar wane though not to the same degree as North India and Kenya.  

“Tea production at the end of the first quarter is also likely to show a negative variance compared to 2011,” John Keells said.

Extremely dry conditions that prevailed in the first quarter of the year have given way to inter monsoonal showers. Bright mornings followed by afternoon showers will prevail until the onset of the south west monsoon in June. These are welcome rains and together with applications of fertiliser are ideal for growth of tea. Despite better weather for cropping intakes are still low due to stoppage of work for New Year and workers mostly on estates up country celebrating their annual religious festivals, but is expected to increase significantly in the month of May.

It is hoped, that the shortfall in crop in key black tea producing countries will help stabilise prices at remunerative levels.  

“We are already witnessing prices of Sri Lanka’s Low Grown teas continuing to rise and are now above last year’s levels. Low Grown accounts for bulk of Sri Lanka’s production,” John Keells added.

In the absence of a sale last week, on account of the Sinhala/Tamil New Year, the 1.2 Mkgs of Ex Estate teas on offer met with fair demand.  Western High Grown BOPs declined following quality.

Below best types shed Rs. 5 to 10 with the plainer types declining further. BOPFs on offer at the top-end declined Rs. 10 and more. However there was better demand for the below best and plainer types. Nuwara Eliya BOP/BOPFs gained Rs. 10. Uva /Udapusselllawa BOPs were barely steady with BOPFs advancing Rs. 10. Select Best Low Grown PF1s were firm, whilst others declined substantially with a fair weight remaining unsold.  High and Medium types shed Rs.10/- on average. Brokens also declined by a similar margin and more for the Low Grown types.

The 3.4 Mkg of Low Growns that were on offer this week, met with improved demand.  Prices for most categories on offer advanced further by Rs. 10 to Rs. 15 and more for the Pekoe varieties. The highest Low Grown average on record was at the sale of 16 September 2009 at Rs. 456.23 when the US Dollar to rupee conversion was at Rs. 115/61.  With the current trend in prices and with the US Dollar to the rupee fluctuating between Rs. 126 and Rs. 130, it is expected that the Low Grown average will reach a record level in the near future. There was excellent demand from Russia, Iraq, Syria and most other Middle Eastern markets, John Keells said.