RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

The coffee market has made it tough for the trade to decide if all the recent news out of Brazil is in fact going to push the market higher.  Recently, news out of Brazil illustrates a market that is pressed for coffee that it likely will not be able to deliver.  In addition, the technical levels on the chart also seem to paint a picture of a market ready to run higher.  Therefore, the question now is, should we take these signals as an opportunity to trade some bullish strategies?

Recent news reports that Brazil exported about 400k fewer bags of coffee in the month of February than the year prior.  It has been a consistent run of bad news as the country may produce as much as 2.5 to 4.5 million bags fewer year over year.  Unfortunately, this has given rise to the argument that if Brazil cannot produce enough coffee, it will have to be forced to import coffee to meet the needs of production and keep prices in check.  Dry conditions have made it difficult for Brazil to recover from two poor Robusta growing seasons.

The technical outlook gives me the impression that the last ten days of sideways trade may soon give way to a move back to 145.00, and then to about 154.00.  The market has had a tough time making it past the 138.00 level which is what I believe is required to see another leg down in prices.  One should use that level to gauge how much risk to take on any bullish strategies. 

In the end, it may be best to consider using options to keep a more defined scope on risk.  However, since we are close to the 3 month bottom, using futures to take advantage of any moves higher may also be worthwhile.  


Coffee Daily Chart


Hector Galvan