Cold season spells better returns for tea traders

An early onset of the cold season, traditionally expected around the month of July and August, has raised hopes among Kenyan tea traders who have for close to four months suffered massive pressure on prices due to swells in production.

Cold weather naturally slows the development of tea leaves, meaning that the current huge supply offers to the auction in Mombasa could substantially reduce leading to firmer prices in the short-term.

“The cold season seems to have come earlier than expected and we are likely to see effects on pricing. The amount of tea coming from the fields is likely to reduce through the cold period with prices as the main winners on the fundamentals of demand and supply,” Peter Njega, a tea dealer told Business Daily on phone. “The market is already showing signs of posting better prices in the coming weeks and many are optimistic.”

Tea prices

Buoyed by goods rains since December, tea production has rapidly grown in the first quarter of this year, effectively diluting a good run in which producers both locally and internationally enjoyed record high prices brought about by prolonged drought conditions that affected crop.

Statistics by the Tea Board of Kenya (TBK) showed that in the first quarter of the year, the volume of Kenyan tea sold through the auction stood at 72.1 million kilogrammes, which was 22 per cent higher compared to 59.3 million kilogrammes sold during the same period of 2009.

From the global perspective, world tea output has also gradually recovered from lower production trend occasioned by drought experienced across the major tea producing countries in 2009.

The effect of this recovery in production has been downward pressure on prices as supply threatened to outstrip demand.

For instance, during this week’s sale at the Mombasa auction, the average price of top tea grades dipped further to $3.38 per kg compared to last week’s average of $3.42.

“It reported another rainy and cold week with production barely maintaining,” the African Tea Brokers (ATB) said in a brief on Kericho which is one of the country’s main producing areas.

The Kenya Meteorological Department in its latest outlook for June-August said low temperature values are expected in most parts of the country, including main tea growing areas both east and west of the Rift Valley.

“The central highlands including Nairobi area are likely to experience cool, cloudy and drizzly conditions. Fairly low temperatures are also expected to be experienced in Central Rift Valley and parts of the highlands west of the Rift Valley,” it said.

The ATB said there was already improved demand for tea at the auction with only 8.75 per cent of the 9.82 million kg on offer remaining unsold as buyers privy of the expected dip in production due to cold weather built-up their stocks.

Tea packers from Afghanistan and Pakistan particularly made huge purchases during this week’s auction with their counterparts from Egypt also returning to mop-up huge supplies from the market.

Packers from Somalia were also active at this week’s sale even though they largely took up the low-end tea grades.