Coffee

RNY Market Watch: July 2016 Coffee Futures Analysis

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A market & coffee futures update

Your RNY Market Watch, July 2016 update on the coffee futures market.

Weather (rain and then a frost) created the impetus for what had begun as a short covering rally. Then, once other moving averages were breached, new buying for the commodity index traders and
funds.  The coffee futures market was one of the best performing softs commodities for the quarter. Prices extended near 1.4800 basis September in late June and one could argue now that a double top exists.

In addition to the weather factors, we also saw a very strong Brazilian Real and that currency strength certainly helped support prices in the same time frame:

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Perhaps coincidence, perhaps not.  Both the double top mentioned earlier and the top in the currency move occurred at or about the same time (June 30th). The uptrend line above will show that there is plenty of room for a corrective sell-off for the Brazilian Real.  Plenty of room to maintain its
uptrend.

We will once again point to the diminishing quantity of certified coffee stock at the exchange.  ICE Certified Stocks are now under 1.30 million bags.  This is the lowest level of certified stocks at the exchange since late 2011.  However, it should be pointed out that world stocks are well above the levels of 2011.  These are expected to be in excess of 20% higher than had been available in 2011-2012.

The market certainly gives us reason to believe the trading range has now adjusted (higher and wider) to 13000 and 15000.

Origin Notes:

  • Brazil: As mentioned, the currency has had a very big impact on coffee prices.  Keep a watchful eye on currency moves.  Do not be surprised if in light of the exposure Brazil will receive during the 2016 Summer Olympic Games, currency volatility expands during that time period.
  • Colombia: Dealing with delays due to a trucker strike.  Weather patterns in Colombia seem to have normalized and new crop developments could be more favorable than had been thought of recently.
  • Central America: Have all done well selling this crop and most farmers are resuming normal activities apart from shipments of coffee, which are generally quiet.
  • Overall worldwide production numbers published by the USDA show 153 million bags of production for 16/17 compared to 150 million for 15/16 and 149 million the year prior.

Once again, this outline is intended to promote thought and an exchange of ideas.

If you have an interest to share your point of view, please do not hesitate to call us.

Good luck and please have a great summer!

*The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether trading is a suitable investment.  We do not guarantee that such information is
accurate or complete and it should not be relied upon as such.