May coffee prices have continued to drop on high open interest and volume, sparking at short covering rally today. The key fundamentals precipitating this continued down is the forecasted wet weather of key growing areas of Vietnam. The Hightower Group has reported that “Vietnam’s top producing province of Dak Lak may see higher than normal precipitation during the first half of April”.  In addition, the number one producer, Brazil, also has wet weather forecast in key growing areas, which will also add continued pressure to May coffee prices. We’ve also continued to see strong U.S. dollar over the past week, which has inversely put pressure on commodities over all, especially those that are already fundamentally weak.

On the technical side, a formidable dive below the 100 level in May coffee prices has yet to see a strong return move to that area, so the market is telling us that prices are currently fair sub 100. Furthermore, a challenge of the 9100 level is on the horizon (both yesterday and today), and we will likely see a violation of this area.  For those looking to trend trade May coffee to the downside, look for a bounce back to the 9650 level before engaging. With such volatility on the horizon, I would advise using options to manage risk and gain exposure to a potentially large move in May coffee prices.

Coffee May ’19 Daily Chart

Coffee May '19 Daily Chart

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Adam Tuiaana

Adam grew up in Chicago and was always fascinated by the fast-paced action found in the futures market hub there. He began participating in the financial markets by trading stocks in 1997 and began his career as a trading consultant with RJO Futures in March of 2009. At RJO, he specializes in risk management and disciplined trading plans, and is focused on educating clients with one-on-one consulting and training. Adam believes the best approach to trading is to take a measured and objective approach and let the markets guide your decisions.