7
 

Coffee: Calm Before The Storm

By  |  Commodities  |  Sep 09, 2013 04:54PM GMT  |   Add a Comment
 
AA
+
-
For the better part of three weeks, coffee prices have largely been range bound consolidating just above their recent lows. The market is in the process of digesting a massive Brazilian crop and the outlook for a potential record crop again next year. Brazil is the 800 lb. gorilla that should serve as a supply burden in the coffee market. Additionally, coffee is factoring in a strong recovery in the Colombian coffee market where exports are increasing and production is expected to near 10 Million bags in 13’, up from 7.7 million last year -- two bearish supply factors and likely good cause why prices will not return to the $140/$150 levels seen four months ago. Still, I think we could see, in the coming weeks, a $130 trade.

The Real's Recovery
This week December futures look to gain for only the second week in the last five weeks on the back of a recovery in the Brazilian Real. Continued strength in the currency could ease pressure on exports that were previously being aggressively marketed. Technically speaking, futures remain oversold and I would not rule out a short-covering rally if we see futures trade above their 50-day MA (red line).
Coffee: December Futures
Coffee: December Futures

The Play
Assuming the bottom red line serves as support and, with an objective at the upper red line drawn on the chart above, I like the risk/reward dynamic, 2-3 cents of perceived risk and 10-12 cents of profit potential. My favored play is long December futures using an options leg as protection, either purchasing a November put or selling a December call 1:1 against the futures.

The idea is to make more money in the future leg than you lose in the options leg.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Add a Comment

 

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

EUR/USD
 
 
 
Are you sure you want to delete this chart?
 
 
 
Are you sure you want to delete this chart?
 
 
 

Successfully Reported

Thank you. This comment has been flagged for a moderator.
_touchLoadingMsg