Will Strong El Nino Warm-up Coffee Market
Fundamentals
The so-called ?tropical softs? commodity markets of Coffee, Cocoa and Sugar are starting to show some increased trading activity of late, as a potential record El Nino weather event has caused traders to price in some ?risk premium? should production issues develop. Cocoa prices have been in a bullish trend for most of 2015, and recently Sugar prices have started to breakout of a bearish trend. That leaves the Coffee market still favoring the bear camp, but there may be some signs of a potential change in trend.
Last week, the lead month March futures staged a bullish reversal after prices failed to make new lows on Wednesday. Prices have rallied over 10 cents per pound since that time on what may have initially been short-covering by weak bears. However, fundamental traders are starting to fear that Coffee production in Brazil and Indonesia could be affected by the strengthening El Nino, with below normal rainfall the major concern. While it correctly appears that the production of Robusta Coffee could be particularly affected, higher quality Arabica Coffee could also see prices rise due to production concerns.
Technical Notes? -? View Today’s Chart
Looking at the daily chart for March Coffee futures, we notice prices have once again moved above the 20-day moving average, which is a potential buy signal for short-term momentum traders. The 14-day RSI has moved from near oversold levels to a more neutral reading of 52.13. One issue with the recent rally is that trading volume has dropped the past few trading sessions, which could signal that the recent buying is mostly short-covering in nature or could be reflective of the upcoming Thanksgiving Holiday, when trading activity can be subdued. We should get a clearer picture of this activity next week. 115.30 remains support for the March futures, with resistance found at 130.20.
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