Coffee Futures Losing Streak Hits Nine Months and Counting

I have never once traded coffee, but for those that have shorted the front month ICE coffee “C” contract during the past few months or even years, life is good…very good. It would be tough to imagine any scenario where a short didn’t make at least some money.

Life is also good for coffee purveyors, especially Starbucks. The Seattle-based company can lower prices to garner goodwill with customers while maintaining its healthy markup…or not. Starbucks just capped off the company’s best year in its 42-year history, said CEO and Chairman Howard Shultz at the fiscal Q4 earnings conference call last week. Store foot traffic also increased by 5%. Outside of China, customers clearly are not pining for reduced-priced coffee.

For coffee producers, the red ink is quite concerning and all signs point to more selling. The front contract has lost two thirds of its value since peaking in May 2010 at $3.08/pound. But looking at the historical context of coffee, today’s price of $1.04 remains higher than five years ago when prices touched $1.02. (See the five-year monthly chart for reference, below).

Coffee's rise and fall, 2008-2013

Coffee’s rise and fall, 2008-2013

Looking at the technicals, the chart looks like a bubble that popped, and with coffee mired in a deep bear market with seeming no end in sight, is the bottom near?

Your guess is as good as mine.

As the market is vastly oversold, one could not be surprised by a technical bounce sooner rather than later. However, I am not one to make that bet, at least not yet. Should the market continue its trend, battle lines will be drawn at long-term technical support at $1.02 and $1.00. Breaking these multi-year support levels may precipitate more selling and the fundamentals—barring any weather-related disasters or freak warehouse fires in the near term—will back up these sellers. The chart itself denotes a rather orderly selloff extending more than two years; the downtrend looks strong.

But, the time for me to short has passed. I have missed the trend, as they say. Instead, I will sit patiently with my morning coffee and wait for a bounce. I may need to get comfortable. It could be awhile…

Have any thoughts on good old “C”? Leave them in the comments below.

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4 thoughts on “Coffee Futures Losing Streak Hits Nine Months and Counting

  1. Pingback: Coffee Consolidates; Where will it Go Next? | Rip City Trader

  2. Thats a very interesting analysis. Have you tried considering measuring the strength of the trends with the TSI indicator?

  3. Pingback: Wake Up and Smell the Coffee Bull Market | Rip City Trader

  4. I blog quite often and I truly thank you for your
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