Coffee Bull Market Re-heating?
Today’s Spotlight Market
Large speculators are beginning to add to their net-long positions in Arabica Coffee futures according to the most recent Commitment of Traders report. For the reporting period ending January 6th, non-commercial traders added over 1,600 new net-long positions to bring their total to 28,067 contracts. Commercial traders appear to be on the other side of the trade, having added over 2,000 new net-short positions during the same time period. Non-reportable traders, which are normally small speculators, are only moderately bullish, with a net-long position totaling 829 contracts.?? ?
Fundamentals
Though I prefer my java to be made fresh, it appears that bullish traders are less picky, as dry conditions in Brazil may be the catalyst for a ?re-warming? of the Coffee bull market. Since the start of 2015, lead month March Coffee has seen prices rally by nearly 25 cents per pound, as it appears that the severe drought that plagued the Coffee growing regions of Brazil in 2014 may have carried over to this summer. A high pressure system has kept rainfall to a minimum, and recent forecasts are calling for dry conditions to continue into next week. Coffee trees, which are already showing signs of stress from last season?s drought, may not be able to withstand another season of dry conditions, which could severely curtail yields if adequate moisture is not received. With 2015 being the ?off-year? in the 2-year Arabica production cycle, this season?s harvest could struggle to meet even the disappointing totals of 2014. It certainly is possible that Arabica Coffee futures may end up being one of the few commodity markets that produce price gains this year, in what is shaping to be an overall bearish outlook for commodity prices in 2015
Technical Notes? -? View Today’s Chart
Looking at the daily chart for March Coffee, we notice a price breakout above the downtrend line that was drawn from the October 2014 highs. This upside price move has also seen prices move above the 20-day moving average for the first time since late November of last year. Bearish traders may counter that the recent up-move could be a ?bear-flag? formation; however, we note that trading volume has been increasing on the recent uptrend, which is generally not a characteristic of this technical pattern. The 14-day RSI has moved back into neutral territory, with a current reading of 50.95. The 200-day moving average, currently near the 191.25 price level, looks to be resistance for the March futures, with support found at the January 5th low of 160.10.??
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