Wednesday, August 5, 2015
Large speculators continue to add to their short positions in Coffee futures, while commercial traders are taking the other side of the trade. That was a quick summary of the data from the most recent Commitment of Traders report for the reporting period ending July 28th. Non-commercial traders added nearly 5,500 new net-short positions to increase their overall net short position to nearly 19,800 contracts. Commercials were net-buyers of just over 4,750 contracts to increase their net-long position to 16,669 contracts. Small speculative accounts continue to "bottom-pick," adding just over 730 new net-long positions to increase their overall net-long position to 3,122 contracts.
While Coffee futures have followed the overall commodity sector during its current bearish funk, there appear to be some signs that the selling pressure may be waning. On the fundamental side, there is talk from a major Brazilian Coffee producer's group that this season's harvest, which is currently about 50%, will be smaller than most analysts were expecting. Conselho Nacional do Café (CNC) is forecasting Brazilian Arabic Coffee production will be below 32.1 million 90kg bags. This is nearly 3 million bags below the current USDA estimate of 35 million bags. Dry conditions early in the growing season were cited for the lower production estimate, as drought conditions may have impacted Coffee trees more than anticipated. CNC officials additionally cautioned that 2016 Coffee production may also see the effects of less than ideal weather conditions. Also supportive was how Coffee prices held relatively steady, despite the continued decline in the value of the Brazilian Real vs. the US Dollar. Normally, a weakened Real would encourage Brazilian producers to export Coffee, as they would receive a greater number of Reals in conversion from their sales in U.S. Dollars or Euros. However, it appears that Coffee exports are running behind last year's totals, which could be a sign that this year's production is running below expectations.
Looking at the daily chart for September Coffee futures, we notice prices trading within a downward sloping channel formation since the end of February. Prices are now trading near the middle of the channel and are hovering close to the 20-day moving average (MA). The longer-term 200-day MA is still quite some distance away from current price levels, which will keep long-term Coffee bears in charge. The 14-day RSI has rebounded from near-oversold levels to a more neutral reading of 45.87. The July 27th low of 119.85 is seen as the next major support level, with resistance found at 132.50.
Mike Zarembski, Senior Commodity Analyst