Coffee Futures Prices Continue Struggling

June 6, 2018 1:54PM CDT

More and more coffee production and supplies continue to weigh heavily on the price of July coffee. An extremely volatile week last week had July coffee prices rallying to challenge the May 125 level highs, only to promptly retreat to the 118 level. The Hightower Group has reported that “Brazil producers are preparing for a record harvest ahead”. To add more pressure to July coffee prices, Columbia is also seeing outputs larger than expected.

Last week’s failure to break above the 126 resistance level (and subsequent selloff) is bearish. The large supply outlook is also bearish. Let’s keep in mind that coffee prices have been trending down consistently for the last two years, and there is no reason at this point to believe a reversal is in place. Traders should position themselves for a long term downward continuation using long put options that allow exposure and leverage, while managing risk effectively. In addition, buy equal-numbered quantities of options so that you can remove half of the position when the option value doubles (thus eliminating the premium risk).

Coffee Jul '18 Daily Chart

Coffee Jul '18 Daily Chart

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