Coffee prices are once approaching the $200.00 benchmark level after correcting down towards the $170.00 level in the summer. Bulls are set to test the near seven years high after a first failed attempt above the $200.00 in July this year.
Speaking of July, a sustained drought followed by two July frosts blew a hole in Brazil’s coffee output, immediately sending wholesale prices for the popular Arabica bean to more than $2 per pound.
According to Carlos Mera, who analyses the coffee markets at Rabobank, the frost will significantly affect the 2022-23 harvest, and could lead to more upside pressure in Coffee price.
Grace Wood, an industry analyst for market research firm IBISWorld, said if consumers don’t see coffee prices rise by the end of this year, they almost certainly will in 2022, as per capita demand is expected to increase.
Wood noted “That is just going to contribute to more demand that is going to further disrupt operations and make it more difficult for operators who are already experiencing supply issues,” Wood said.
The charts are also becoming more bullish and showing a clear uptrend. With other commodities starting to breakout due to supply side issues, Coffee could be one to watch for trend traders.
According to the ActivTrader platform market sentiment indicator some 91 percent of traders are short coffee, meaning that a big, short squeeze could be in the making if a rally above $200.00 takes hold.
Typically, a strong one-way skew in positioning is ideal for timing a new price trend. We should also consider that commodities are starting to look bullish again due to increased demand into year end.
Coffee Short-Term Technical Analysis
In the near-term, the four-hour shows that bulls need to rally Coffee back towards the $200.00 benchmark level to invalidate a large head and shoulders pattern.
According to the overall size of the price pattern at $20.00 move is about to take place once a breakout from the $180.00 and $200.00 level takes place.
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Coffee Medium-Term Technical Analysis
Looking at the daily time chart the overall importance of the current all-time price high, around the $225.00 level, appears to be the main target for bulls.
If we see the price reaching the $225.00 level it could provide a green light for a medium-term price rally to $300.00. I suspect the rally could quicken if a new all-time high is set.
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