Lee Gaus on the Coffee Market

Coffee Comments

I have said it before and will say it again, the Coffee market is one of my favorite if not my favorite commodity futures market.  Given this positive predisposition to the Coffee market I thought it would be a beneficial to author a brief communique discussing the Coffee market.

  • Last week Coffee got whipsawed pretty good due as political turmoil in Brazil led to a major drop in the Brazilian currency.  This caused the July coffee to dip to a new monthly low but on Friday things settled out and Coffee closed $2.45 higher for the day.
  •  The LAWG Model shows Coffee in a long term down trend for the last fourteen weeks.
  • Due to this being an off biennial year for Coffee trees Brazilian coffee production is expected to fall between 15 and 20 percent from last year.
  • Brazil makes up about 40% of the world’s total production of Arabica coffee.
  • We are hearing of some analysts increasing the 2017-2018 deficit forecast.
  • As this is written Brazilian Coffee harvest is running a little ahead of normal.
  • Columbian labor unrest and weather issues may interrupt shipments this may underpin the market temporarily.
  • LAWG Model has Coffee in down trend needing a close this Friday at or above $144.35 to reverse the trend to bullish.  Failing that it will need a close on Friday, June 2nd at or above 140.00.
  • Critical support comes in at the $128.80/128.00 levels, penetration of these levels could lead to a drop of another $10.00.
  • Simple 200 day moving average $145.82, simple 100 day moving average $144.12.  (Friday’s close $132.10)

I always found the Coffee market to be like a woman: once it has made up its mind which direction it wants to go in, no sense in fighting it.  Might as well just stand back and play along until it gets to where it is going.  Consequently as long as the LAWG Model shows the trend to be negative I will continue to look for places to go short Coffee on rallies.

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.