If you seasonally look at coffee over the past 25 years, coffee has a tendency to move higher from the middle of October through January as demand for coffee increases due to the cold winter months. Coffee is harvested at the beginning of summer and by August the roasters are building inventory for the coming winter. A quick foot note, Brazil and Vietnam are the two largest producers of coffee, producing 41% of the world’s coffee each year.
Below is a daily chart of coffee futures with a 3, 21, and 65 day moving average. Notice the trend; it is not going up. During a time when coffee ought to be moving higher, coffee is in a decline. This is because the coffee crop was quite robust (pun intended) this year. Brazil decided to warehouse much of its crop to keep the price up, however, the other South American countries do not have the storage facilities that Brazil has and had to sell their crop. Because of the increased supply, the price of coffee has been pushed down.
In the short term, coffee is weak below 1.500, but will remain weak as long as it stays below 1.620. At $375 per penny, it is a bit hard to swallow holding it for a swing trade, but the rewards are well worth it.
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