Do You Like Coffee?
Razvan Podariu | Nov 18, 2014 12:56AM ET
In 2014 the coffee was one of the best performer of all commodities. Global coffee prices surged to two-year highs on the news of a devastating drought in Brazil - the world's biggest-producing and exporting country. Southern Minas Gerais, a region producing some of Brazil's best arabica beans, tends to rely on nature, not irrigation. Carlos Paulino - the president of Cooxupe coffee cooperative - said that the 2015 coffee crop was damaged during the flowering stage and there is no doubt about not having a normal harvest. The only unknown is only how big the loss will be.
This year's crop was down 20% but judging from the dry branches, which have leaves and flowers, the 2015 crop could be just as bad. I wonder if in terms of value, the jump in the next year's coffee prices will be more or less the same as this year.
If the investors look to India, where the domestic production is set to be the highest ever (in the range of 340,000 tonnes), the price climbing should be limited. However, the futures contracts for the coffee seems to be well supported by the 200 SMA on the daily chart, after reaching a top for 2014 at 225.35.
What is interesting though, is the gap not covered yet between 210.55 and 203.13. The latest news from Brazil are not better and I don't know how much the Indian coffee will weight in settling the prices for next year but from a technical point of view buying some contracts with stops below the 200 SMA and targeting the gap closure, seems to be a good risk/reward trade.
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