What's brewing in my cup?

Every time is TEA time

Before going further, its important to understand, a few basic stuff about tea. There are two main styles of tea produced across the world.

Orthodox tea and CTC tea

Conventionally speaking, orthodox tea refers to loose-leaf tea that is produced using traditional (or orthodox) methods of tea production, which involve plucking, withering, rolling, oxidation/fermentation and drying.

CTC (Crush, Tear, and Curl or Cut, Tear and Curl) is a method of processing black tea in which tea leaves are passed through a series of cylindrical rollers with serrated blades that crush, tear, and curl the tea into small, even-shaped pellets.

There are three main differences between the orthodox tea and CTC tea.

The intent of production

Orthodox method of tea production is more focused on preserving the singular virtues of the leaf while CTC tea is about ensuring faster production of homogenized, consistent tasting tea.

Tools and methods of production

While orthodox tea makes use of traditional practices, which can be time-consuming and require a lot of human intervention, CTC method is a faster way of producing consistent tasting tea. For making CTC tea , leaves are fresh, whole leaves are fed into the CTC machines which crush, tear and curl them and process them in a period of just two hours. The resultant tea is even and looks like small brown nuggets.

In Orthodox processing, every batch of plucked leaves is treated to a precise amount of withering, rolling and oxidization, decided by trained tea professionals so that the best flavors can be extracted out of the leaves. Care is ensured while rolling and handling these leaves, because they are of a delicate nature, highly susceptible to adulteration and damage.

The flavor profile of the tea

Compared to a CTC tea, orthodox tea offers the most authentic tea experience. Orthodox teas, be it black, green, white or oolong, are known for their flavor complexity and delicate make, much the reason why they are highly prized in the world tea market.

Freshly produced orthodox tea benefits its drinker in far more positive ways than a CTC tea, especially in regards to health and wellness. The latter class of tea, on the hand, is generic tasting and produces strong, dark liquor with a distinctly astringent flavor profile. Also, CTC tea accommodates the addition of condiments like milk and lemon far better than orthodox teas.

Now lets come to the business called Tea

China is the largest tea producer in the world followed by India, Kenya, Sri Lanka and Turkey.

As shared above, its mainly between Orthodox Tea and CTC. Sri Lanka with shipments of 301 million kgs (2.8 Green) in 2015, is the major player in the market for Orthodox Black Tea, with Kenyan combined origin Exports of 443 million kgs dominating the overall CTC Black Tea segment.

A review of globally-traded tea reveals that Asia’s’ two producer giants are also the largest consumers and are overshadowed by African producers who supply the greater volume of tea exported.

Sri Lanka production outlook 2017 

Specialists suggest that La Nina conditions could continue through Q1 2017 and have projected uncertainty over rain fall patterns. Failure of the North East Monsoon in Q4 2016 ads further pressure to the already fragile supply situation. Delayed agricultural practices and low application of fertilizer could have an impact on crop intakes in Q2 2017 as well.

Market outlook 2017 

The rapid shortfall of Orthodox Black Tea from Sri Lanka from mid-June 2016 and some loss of crop from South India triggered price increases at other auction centers. Kenya enjoyed a bumper crop and more than recovered its 2015 losses. Following a sharp correction that lingered till mid-May, Mombasa auction prices picked up thereafter and closed above the years’ opening rates.

Both Sri Lanka and South India will have similar weather conditions which are expected to be uncertain at best during Q1 and probably until mid or end June. Sri Lanka will find the going tougher due to lower fertilizer application and weedicide issues.

Kenya and other African producers and North India could have another good year of crop; resulting in high CTC availability. The supply of Orthodox Black Tea to the Colombo Tea Auction and worldwide could well remain low till June. Sri Lankan exporters’ inventories have been depleted from June 2015 and their clients’ stocks of Ceylon Tea in the value chain too will also continue low.

Key forces that could influence 2017 

India in particular is just waiting to seize its opportunity with subsidies being offered for Orthodox expansion. The market for India’s Ceylon substitutes even though of a lower quality profile strengthened in 2016 and are likely to attract more interest during Q1 2017. Kenya’s’ rising cost of production and oversupply could compel accelerated exploration of Orthodox alternatives. At the same time Kenya’s small holders are looking at alternative crops for better financial rewards.

Have a look at the following two charts

These two charts clearly shows the tea prices are on the rise in international markets, yet to achieve prices of year 2015 highs.

How the charts of few Indian players look like

Goodricke

B&A

Warren Tea

Dhunseri Tea

BBTC

CCL Products

Duncons India

Gillanders

Jaysree Tea

Tata Global

Rossell India

Information as stated at Rossell Tea website

Orthodox tea fetches better prices internationally and owing to shortfall of orthodox tea in Sri Lanka, all the players such as Rossell India who are mainly engaged in producing orthodox variety of tea, also are in business of export are strategically well placed to gain good.

To make it a little interactive for the readers, I've pointed out Rossell India as a suitable case which combines TA+Pointers to what kind of business they are in and they do export too. By the way Rossell India features in List of Top 50 India Tea Exporters

Would like to receive inputs about the companies I've mentioned/not mentioned. Any interesting piece of info is welcome.

A few charts, don't indicate entry/exit price, well I've reserved that for all those people who open an account at my broker under my franchisee.

Cheers!!

On a lighter note

चाय वालों के दिन अच्छे चल रहे आजकल