Bears Get Coffee Buzz
Coffee futures have been on the decline like many other commodities recently, and are trading at a seven-week low. This market is starting to consolidate, but I anticipate a storm of bearish news, and a breakdown in December contract below $1.35 a pound. The contract is now trading near $1.3920, while the front-month September contract was at $1.3540.
There is a bumper crop brewing in Brazil, the world’s largest coffee producer, and Vietnam is likewise expecting a larger crop this year. There are no real significant weather factors that will impact the crop until at least mid-September. Brazil had started their harvest a bit late, but dry weather is moving it along at a good clip. The market had rallied from mid-June to early July, but the gains seemed tied to speculation of wet weather in Brazil that didn’t develop. When Brazil finally completes its harvest, it’s expected to see a crop of about 44.5 million bags, up from 33.7 million last year. The U.S. Department of Agriculture has predicted Brazil’s harvest could be over 50 million. That’s pretty bearish, in my view. Watch not only the crop figures, but also exchange-deliverable stocks too, which were up last week.
For a trading strategy, I recommend buying one December coffee 130 put outright; you should try to buy it at four cents or better, which would cost $1,500 plus your commission costs. My target is $1.20.
Feel free to call me with any questions you have about this strategy or others to suit your particular account size and risk tolerance. Ask about our special half-off commissions offer for new clients.
Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.
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