Coffee Prices “Perk-up” On Short-Covering
???? Fundamentals
It was a volatile start to the week for Coffee futures, as prices traded to 2-week highs on concerns that an outbreak of “Coffee Rust” disease in Central America will curtail output. The potential impact to Central American Coffee production, which accounts for about 10% of global production, combined with a rather large short position being held by speculators, seems to be triggering optimum conditions for a bout of short-covering buying.
Trading activity was particularly volatile on Monday, as New York Arabica Coffee has a shortened trading schedule due to the closure of the London commodity market for the Easter Monday holiday. Going forward, Coffee bulls still have some strong headwinds to overcome, including a record off-year crop from Brazil and a much stronger U.S. Dollar, which are weighing on commodity prices.
However, the lower prices currently seen for Arabica Coffee may spur increased demand from end-users, as the price premium seen for Arabica Coffee vs. lower quality Robusta has fallen to nearly 4-year lows. This may shift demand from roasters back to Arabica beans, after a two-year stretch of increased Robusta Coffee usage in blends due to high Arabica prices.
???? Technical Notes
Looking at the daily chart for July Coffee, we notice the nearly 5 ?-cent price range during Monday’s holiday-shortened trading session, as traders came back over the weekend to concerns about lower production out of Central America. However, the day’s early gains were muted by selling pressure that was uncovered once prices moved above the 20-day moving average.
Volume was relatively light to start the week, as European traders remained on holiday until Tuesday, when volume rose sharply as prices drifted lower. The 14-day RSI has recovered from oversold conditions, but is still holding at a relatively weak reading of 39.92. There remains significant upside resistance between 145.00 and 150.00 on the daily chart. However, should prices manage to rally through this upside congestion, there is no significant upside resistance until the 163.00 price level. Major support is seen at the contract low of 134.80 made back on March 20th.
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