Today’s Spotlight Market
The recent recovery in the value of the Brazilian Real vs. the U.S. Dollar has sparked some renewed interest in spread trading between Arabica and Robusta Coffee futures. While fundamentals including dry conditions in Robusta growing regions of Brazil and Vietnam would seem to favor this variety over Arabica Coffee, which is seeing ample production being reported from Brazil this season, the Arabica futures have actually outpaced Robusta futures, as traders believe that Arabica producers will be less inclined to sell Coffee into the export market while the Real is rising. In addition, producers may want to increase inventories of Arabica Coffee following disappointing production totals the past 2 seasons.
Fundamentals
Arabica Coffee futures have been in an uptrend since early June, as a rather surprising recovery in the value of the Brazilian Currency coupled with some moderate frost damage in the key Coffee growing regions in Brazil could curtail production next season. Since the start of June, the lead month September futures have rallied over 30 cents per pound, trading as high as 154.80 prior to a modest price correction.? We have to go back to early 2015 to see the lead-month futures trade at these price levels, with market technicians starting to see signs that the overall bearish trend that began in late 2014 may be nearing an end.?
Outside of Brazil, a strike by truckers in Columbia has curtailed Coffee shipments into the export market. While many analysts believe the strike will not be a long-lasting event, the temporary halt to Coffee shipments from this important producer has added some support to the market.?
Both large and small speculators have embraced the long side of the Coffee futures market, with the most recent Commitment of Trader?s report showing non-commercial and non-reportable traders adding a combined 4,446 new net-long positions during the reporting period ending July 12.? This was just prior to 17-month highs being made as trend following traders added to existing long positions as new 2016 highs were made. Commercial traders are on the other side of the trade, selling into the rally and adding to existing short positions.? ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for September Coffee futures, we notice prices continuing to hold above both the 20- and 200-day moving averages, despite correcting nearly 7 cents from the recent high. Trading volume has been trending lower the past few weeks, following the rollover from the July into the September contract. The 14-day RSI has started to trend lower following a bearish divergence, as this momentum indicator failed to make a new high reading at the 2016 high. The July 15 high of 154.80 remains strong resistance for the September futures, with support seen at the chart ?gap? at 144.35 made back on July 8.
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