Positive production numbers coming out of Columbia weighed against a challenging 2019/20 crop from Brazil and have tied May coffee futures prices to a tight consolidation range. The consistent strength in the Brazilian real, for the time being, may be enough to keep May coffee prices well within a defined trading range. We’ve seen May coffee trade “in the zone” from 102 to 110 since December of last year, so the likelihood of a revisit to sub- 100 levels is unlikely for the time being. However, we can see this trading range slowly but surely break above the 50-day moving average (resting at 107) and now we wait to see how long support can be held in this area. As I’ve mentioned before, this is a market that has been in a complete freefall for quite some time and turning this massive ship around will require patience.
On the technical side, a break above this 50-moving average is positive for coffee prices, but we may very likely see a revisit to support at the 102 area before another leg higher. I would not be surprised to see a static range in consolidation for next couple of weeks. Buying call options or selling put options with hedge protection could be a great way for traders to approach the bullish side of coffee, while effectively managing risk in the trade.
To learn more about sideways markets, please check out our free Finding Success in a Sideways Market article.
Coffee May ’19 Daily Chart