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Huge Crop Continues to Push Down Coffee Prices

Tuesday, October 22, 2013

December Coffee (KCZ13) made new contract lows amid improved growing conditions in Brazil, the world's largest producer. The massive supply of Coffee may continue to plague the market going forward. Outside markets were of little help to Coffee prices, as commodities were mostly soft across the board yesterday. The recent weakness in energies could have negative implications for commodities as a whole. Technically, the pattern of lower lows continues, indicating the market is still mired in a downtrend.

Fundamentals

Much of Brazil's Coffee growing region is expected to see plenty of sunlight this week, which is expected to allow farmers to work fields to get a good jump on the 2013-14 crop. Brazil has seen a good mix of alternating rainy and dry weather conditions, which has some forecasters calling for an even larger than previously expected crop. The USDA has forecast that global Coffee production will exceed demand for the fourth consecutive year. In addition to a potentially massive Brazilian crop, crops in Indonesia and Columbia are expected to be in the upper range of expectations.es this summer, we may see a Corn crop totaling nearly 14 ½ billion bushels!

Technical Notes

Turning to the December Coffee chart, we see the contract continuing its pattern of lower highs and lows. The downtrend line has been flattening of late, but there are no signs that the market is ready to reverse course anytime soon. The 50-day moving average has acted as the upper barrier to the downtrend, while prices have largely centered around the 20-day average. If prices can gain enough traction to cross through the 50-day average on the upside, the market could gain some momentum.

Rob Kurzatkowski, Senior Commodity Analyst