In the last two years, coffee price have been cut in half but within the last few weeks it looks like we may have found a value zone. After trading down for nine consecutive weeks coffee has been able to show marginal gains closing higher four out of the last five weeks. I have been scaling into bullish option trades for select clients by purchasing calls and for more aggressive clients by selling puts. My recommendation is to be out in May or even July for fresh entries to allow time for the trade to develop. One of the keys to me is if we can get a settlement above the down sloping trend line; identified on the chart above just above current pricing we could get a shift in momentum.
In the weeks and months to come I think it is feasible to see front month futures trade near $1.75/1.80, which would amount to a 17% gain from current levels.? Remember picking a bottom can be complicated and if prices fail to get above the down sloping trend line mentioned and conversely trade down to new fresh lows admit you?re wrong and cut losses.
A monster crop has already been priced in in my opinion and while the demand has been lackluster I see that changing in the near future. A combination of these two fundamentals could lead to a trend reversal. When identifying a longer term position whether it is a long or short trade I try to find a commodity that the market has either overpriced or underpriced and I feel coffee currently fits that bill.