Coffee: Robusta And Arabica Destined For Lower Ground
Matthew Bradbard | Sep 27, 2013 04:00PM ET
I rarely trade Robusta coffee and for that matter rarely drink it but in Friday’s I made price projections thinking that further weakness is warranted all things considered. As for Arabica, which I trade and drink, it too looks destined for lower ground (see chart below). I advised client’s long futures to cut losses today on the fresh low. They lost on their futures leg and made up some of their losses with hedges we’ve implemented in recent months. YTD Arabica coffee futures are lower by 22% with back to back bumper crops from top grower Brazil weighing significantly on pricing.
If futures breach their July 09’ level just below current trade I would not rule out a trade to the red horizontal line just above $1 by year’s end. At this juncture I am not advising bearish trade but rather will be looking to be a buyer from lower levels for coffee traders.
I do think lower trade is likely and expect momentum led traders to add to bearish trades so get out of coffee’s way. Maybe the steep discount we’ve seen in 13’ will allows Starbucks to drop their prices. I think it has been a self fulfilling prophecy that weakness in Robusta is fueling the weakness in Arabica and vice versa as multi-year lows shall persist short term with abundant crops globally.
The game changer in my opinion could be a change in weather patterns as coffee can be extremely sensitive…too much or too little moisture is not good not to mention potential for La Nina. Do not rule out month end and quarter end short covering but as we outlined in the monthly EGSI/RCM coffee report published last week we do not expect gains to be sustainable.
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