Commodities 3 minutes to read

Arabica coffee prices pushing higher

Ole Hansen

Head of Commodity Strategy

Summary:  Investors in Arabica coffee have long been awaiting an elusive bounce. Prices are currently challenging the 20-day moving average, suggesting that it might be drawing closer.


Both investors in Arabica coffee and those merely tracking the commodity have been waiting for a bounce for some time now, but the rally has remained elusive.

Following a higher low this week, however, the December contract is currently challenging the 20-day moving average at 99.89 cts/lb, a level it has not closed above for more than three months. A break above this point, confirmed by a close above 100.75 cts/lb, could potentially signal some upside next week. 
Source: Saxo Bank
In the week to September 18, hedge funds held a record short of 109,000 lots, the equivalent of one-third of the total open interest and more than twice the average daily volume. However at this stage, given how far coffee has fallen during the past few months, it would require a bigger than the aforementioned move to trigger a proper short-covering rally. This is nevertheless worth keeping an eye on.
The recovery this week has primarily been driven by the bounce in the Brazilian real from its record low recorded a couple of weeks ago. Fundamentals, however, do not yet signal much of an improvement with Bloomberg reporting the following:

• “Excellent” flowering registers in Minas Gerais and Sao Paulo, signaling a plentiful crop for next year (this according to a Bloomberg interview with Regis Ricco Alves, director at RR Consultoria Rural in Varginha, Minas Gerais)
Even trees with abundant output this year show ample flowering, defying the usual easing trend
Some trees in Cerrado of Minas Gerais face stress from dry conditions, losing ~10% of their flowering potential
Brazil may produce ~80% of the volume of Arabica coffee collected this year or the full potential, depending on favourable weather
NOTE: Coffee enters in the lower-yielding half of a biennial cycle
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
3 Church Street, #30-00
Samsung Hub
Singapore 049483

All departments are available 08:30 to 17:30 Monday to Friday.

Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.