Is The Start Of A Bull Market Brewing In Coffee Futures
Today’s Spotlight Market
Large speculators reversed their net-position in Coffee last week, moving from a net-short to a net-long position. The most recent Commitment of Traders report shows non-commercial traders added over 19,400 new net-long positions during the reporting period ending March 15. This moved the overall position to a net-long 14,865 contracts. Commercial Traders, as expected, sold into the rally adding over 18,600 new net-short positions and moving the overall positon to net-short 16,357 contracts. The non-reportable or small speculative position saw some long liquidation selling into the rally as the overall net-long position declined by just over 800 contracts to a net-long 1,492 contracts.??? ?
Fundamentals
Commodity traders are beginning to ?perk-up? to some bullish fundamental news in the Coffee market of late as prices have rallied over 20-cents per pound since the beginning of March. First we have started to see some concerns from traders that dry weather conditions in the Coffee growing regions of Brazil and Columbia may force analysts to revise lower their production estimates for the 2016/17 season. Low Coffee prices the last few years could produce lingering effects on future production as producers are forced, for economic reasons, to defer or curtail maintenance on the trees to save money. A large European bank has lowered its estimate for Brazilian coffee production to 51.8 million 60kg bags, with Arabica production totaling 39.2 million bags and Robusta production totaling 12.6 million bags. The wildcard for Coffee prices could be any fallout from the political uncertainty surrounding Brazil?s President and its effects on the value of the nation?s currency the Real. While the Real has recently recovered from over 13-year lows vs. the U.S. Dollar, traders fear the Real could come under further pressure should the political climate continue to worsen. While normally a weak Real would encourage producers to sell Coffee into the global market, there is some thought that producers may withhold Coffee from the market as a potential inflation hedge should the Real slide further as well as a means to help support prices as end users are forced to pay higher prices to pry supplies out of storage.?? ?
Technical Notes??
Looking at the weekly chart for May Coffee we notice the steep up move in prices since the beginning of March, which has matched the rally in the Brazilian Real. In addition, the March 1 low at 113.40 could be a failed test of the previous low made back on January 20 which could be interpreted as a double-bottom technical formation. Coffee prices have rallied above several chart resistance levels the past several trading sessions including trading above both the 20 and 200-day moving averages and moving above the downtrend line drawn from the April 2015 highs. The 14-day RSI has moved into overbought levels with a current reading of 70.49. Chart resistance is seen at the recent highs of 135.00, with a weekly close above this level setting-up a potential test of the October 2015 high of 142.85. Support is found at the March 16 low of 124.05, with major support found at the January 20 low of 113.35.
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