The coffee market has been tied up in a relatively tight range the last eight weeks. Values just under 120 and as high as 130 have left many bored with the market and others content with trading the range back and forth. However, this is actually the time when many should be paying the most attention to coffee and perhaps the next biggest mover. 2017 was a difficult year for coffee prices as previous shortfalls in Robusta and questionable quality in parts of the Arabica regions left prices hovering near $2.00. Most of last year was spent in a never ending downtrend that seems to have found a stable value around $1.20. Now, the trade anxiously looks to the future and any possible catalysts that would give the price of coffee an excuse to run higher. Currently, we are closely watching this seasons Arabica production which may fall short due to the quality of beans being produced. Production at this point is forecast around 38 to 39 million bags, this down from the 16/17 output of 45.6 million bags. Should these numbers hold or project lower it could be enough to push prices back into the 130 to 140 range. Furthermore, the US dollar will also be key to how we value coffee. If the US dollar builds significant strength in 2018 that could easily weigh on prices and mitigate any large price changes. I would argue that using inexpensive Call options to take advantage of any move to 130 to 135 would be worthwhile.
Coffee Mar ’18 Daily Chart