Coffee has been one of the best trending markets for two whole years, but it is clearly trending down. From the last week of October 2016 to the first week of November 2016, one of the better performing commodities suddenly reversed course and has continued to drop in price until putting in a double bottom on the daily chart at 95.20 and 95.10 on September 18th and 19th 2018.

In my opinion, this recent rally to 125.50 was nothing more than a short covering bounce in a major bear market. After all, there were a record number of shorts in the coffee futures. This bounce did not even have enough muscle or momentum to achieve the technical objective of 130.00.

Brazil, the world’s number one producer of coffee, had a record large crop this year and has more than enough supply to still move. Vietnam is the world’s second largest producer of coffee and has just begun to harvest what may also be a record large crop. As of Tuesday morning, coffee sits at 115.00, down 2.56% on the day. Expect further drops in prices from here if the December contract manages to close today below 115.00.

At some point these big supplies and low prices will take care of themselves by reducing production and increasing demand. However, it takes time to work through big supplies. More down from here.

Coffee Dec ’18 Weekly Chart

Coffee Dec '18 Weekly Chart

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Frank J. Cholly

Senior Market Strategist

Frank is a swap registered trader who brings his clients more than twenty-six years of commodity futures experience. He was a member at the Chicago Board of Trade for 10 years where he filled orders in the grain and financial pits. Frank was also a Lind-Waldock's floor manager for ten years and later joined on as a commodities broker.

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