Carley Garner spoke with Dukascopy about the coffee futures markets
1- Supply outlook seems positive, with prices dropping slightly on the back of this, do you expect this downward trend to continue?
In my opinion, most of the selling in the coffee futures markets have probably already occurred, but seasonal tendencies suggest the overall trend will remain sideways to lower through late summer. That said, anybody attempting to speculate on the short side of coffee should respect the fact that the Arabica futures traded on the ICE exchange in New York currently have the largest speculative short position seen in over a year. Thus, even if the trend remains bearish there is potential for large short-covering bounces.
2- What looks set to have the biggest effect on the market going forward?
Now that the Brazilian harvest is underway and the crop yield is relatively predictable, the market will likely turn to the currency markets for guidance. For instance, the Brazilian currency took a large spill on news of massive political protests taking place across the country along with other unflattering political news around the globe. Coffee prices sold off sharply in sympathy to the currency move. In the overall scheme of things, the Brazilian currency is still rather high leaving plenty of room for the currency to retreat. If so, this should keep coffee prices capped.
3- Overall, are you positive about the market in it's current state?
Coffee prices are obviously in a slump. I think that at some point much later in the summer, the coffee futures market will find proper footing to provide attractive opportunities for the bulls. However, in the short-run, I’m not convinced any rallies will be sustainable.