Are Coffee Bulls Switching To Decaf?
Fundamentals
The recent bull move for Arabica Coffee futures was ?good till the last drop?, as prices nearly doubled the past 4 months, as hot and dry weather conditions harmed Brazilian Coffee production this season. However, with front-month May Coffee trading well above $2 per pound last week, commercial buyers were hesitant to chase prices higher. This pulled support from the market just as private estimates began to revise upward their size of this year?s harvest.? The upshot of all this activity was a severe price correction, with prices falling over 14% for the week. This was the largest 1-week loss for Coffee prices in nearly 15 years and may have signaled the end to the recent bull move.?
Rain has finally reached some of the parched Coffee growing areas in Brazil the past several days, and weather forecasts are calling for additional moisture in the coming days. Although some traders believe that the rains may have come too late to boost production this season, it was enough to shake weak longs out of the market. In addition, there has been talk that the Brazilian crop may end up above 50 million bags, despite the drought, which if true would help to elevate potentially tight supplies.
Signs of a potential near-term top for Coffee prices may spur producers to release supplies into the market, especially in Vietnam, where Coffee growers were holding supplies off the market in hopes of realizing higher prices. With Coffee?s notorious reputation for volatile price movements, it may be too early to rule out further price advances, especially until we get a clearer picture as to the actual size of the Brazilian Coffee harvest. ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for May Coffee, we notice how quickly prices have corrected from recent highs, as the ?gravity effect? has once again taken its toll following a steep upward price move. The current sell-off has taken prices back towards the 38.2% Fibonacci retracement level calculated from the November 2013 lows to the March 12th highs. Trading volume has not been as heavy as expected on the recent correction, which may be a sign that large speculators have not yet liquidated their long positions in any major way. After a move to extremely overbought levels earlier in the month, the 14-day RSI has slipped below 50, with a current reading of 44.08. 156.65 is seen as the next support level for May Coffee, with resistance found at 190.00.?????
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