Coffee futures rise, hit by supply concerns

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  • ICE Exchange, Arabia E-Coffee futures for October delivery hit an 18-month high last week
  • Supply from the top four export countries fell 22% in July, which was the lowest since October 2011
  • Speculators pushed net longs in coffee futures to the highest level since October 2014 at 41,821 contracts

Arabica Coffee futures settled on Thursday at $1.476 per lb. after briefly trading near $1.538 per lb. last week. Prices touched an 18-month high, led by a strong rally since mid-August this year which saw Coffee prices slide to a one-month low at $1.350 per lb.

Speculators were net long in Coffee contracts

The pull back from the 18-month high came as last week’s CFTC CoT report showed that speculators pushed the net long positions by nearly 10,000 contracts to the highest level since October 2014 at 41,821 contracts. The bullish bets came amid concerns of a supply squeeze after a recent report showed a surprise drop in Columbian output during August alongside downgrades to output from Brazil.

Supply concerns continued to remain the main theme in August after July was marked with lower export volumes totaling 7.7 million bags, which were 22% lower on a year over year basis with four of the top coffee producers registering lower shipments. The lower exports were incidental, the lowest monthly volume since October 2011, according to industry reports. The overall exports this year is currently seen to be 1.7% in deficit compared to a year ago, and the deficit is expected to continue into next year.

Price Forecasts – Arabica-Coffee Futures

Despite the current strong levels in Coffee prices, many expect a moderation in price. Global Coffee Monitor said last week that it expects Arabica futures to average $1.41 per lb. next year which is currently lower than the futures price, but is still considered an upgrade from the $0.91 per lb., it forecasted previously.

Rabobank’s futures analysts, however, remain bearish on prices noting that the damage to crops in Brazil was “insignificant” while flagging boost to production from rains in Central America. Rabobank estimates the price of Arabica to average $1.38 per lb. in the October – December quarter.

Coffee Futures – Mind the evening star on weekly chart

Despite the current supply concerns in Coffee futures, adding weight to the bearish view from Rabobank is the technical chart pattern signaling a potential correction to the recent rally. The weekly chart shows a possible evening star pattern that is forming, which could be confirmed on a bearish close in today’s session.

Short support is seen near $1.46 which could see a minor bounce. However if the support gives way, the further downside could be expected with prices likely to fall to the next support level seen at $1.38.

ICE Futures, Coffee (Arabica) Contract ($1.476)
ICE Futures, Coffee (Arabica) Contract ($1.476)

On the lower time frame, traders can look for potential trading opportunities on any pullback to the upside. The 1-hour chart points to pull back in coffee futures back to the 1.552 – 1.517 resistance zone. Watch for a possible bearish divergence that could be formed on the daily chart with a price near the mentioned resistance level, which will then confirm a correction towards the $1.38 level.

Orbex.com, ICE Futures Coffee (Arabica) Contract for October Delivery (KC_6Z)
Orbex.com, ICE Futures Coffee (Arabica) Contract for October Delivery (KC_6Z)

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