Coffee Market Heating Up!
Today’s Spotlight Market
Small speculators have the upper hand in the Coffee market of late, as Large Specs were in long liquidation mode just prior to the recent price rally. According to the most recent Commitment of Traders report, non-commercial traders were net-long only 86 contracts during the reporting period ending May 31. This was a reduction of over 10,000 contracts and occurred just prior to the nearly 25-cent price rally. Non-reportable traders, meanwhile, were adding to their existing long positions, adding an additional 1,700 new net long positions to bring their total net long position to just over 7,300 contracts. Commercial traders were buying back short positions, covering over 8.500 net short contracts, which reduced the overall net-short position to just over 7,400 contracts.
Fundamentals
While here in Chicago we are looking at temperatures in the 90?s heading into the weekend as the beginning of summer approaches, in the Southern Hemisphere Coffee traders are starting to build in a risk premium in Coffee futures prices, as weather forecasters have issued a frost warning for parts of the Brazilian Coffee growing region. There already have been reports from Parana state of some minor frost damage, although the overall effects should be minimized, as only about 5% of the Brazilian Coffee production comes from Parana. However, should below-freezing temperatures head further north into Minas Gerais, then the potential for more meaningful damage could occur. In addition to the recent weather concerns for the Brazilian Arabica crop, a major bank has cut its forecast for global Coffee production for the 2016-17 season by about 1.4 million bags to 152.6 million bags. If accurate, the Coffee market could be in a deficit by over 2 million bags this season. In just the past 5 business days, the front-month July futures have rallied nearly 25 cents per pound with weather concerns, a stronger Brazilian Real and short-covering buying all noted as catalysts for the price run-up. However, it appears that on Thursday some hedge selling pressure finally emerged, as prices reached the 145.00 price level, which has capped the rally for the time being. We may need to see additional reports of frost damage or further dryness concerns for the Robusta crops in Southeast Asia to generate enough bullish fundamental news to spark further upside momentum for Coffee prices.
Technical Notes? -? View Today’s Chart
Looking at the daily chart for July Coffee futures, we notice the steep price rally the past several sessions, with prices moving past the previous major resistance level at 144.15 before commercial selling pressure capped the rally on Thursday as prices settled well off of the day?s highs. Prices are now well above both the 20- and 200-day moving averages, and the 14-day RSI is strong but has moved back below overbought levels with a current reading of 63.05. We have to look back at the August 2015 high of 149.60 to find the next resistance level for the July futures, with support seen at the May 27 low at 120.80.?
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