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Coffee - One of the Last Commodities to Take Off


The commodity sector as a whole has exploded higher over the last few months; coffee is one of the few commodities that hasn't (although it still did move off its low).  Cocoa, Lumber, Crude, Cotton, Gold, Silver, Copper, Heating Oil, Sugar and the Soybean complex have all moved higher, so does that present an opportunity for coffee?

Coffee has meandered lower throughout 2015 and 2016, putting in a March low of 115.35 on the July contract. After that the price spiked to 138.2 in late March, but has since drifted back to the 121 to 123 region.

While not all commodities move together, and there are independent factors that affect each market, coffee does look like it could follow the other commodities higher. This has been a long basing pattern (bottoming process) in coffee, and the brief rally to 138.2 did eclipse the prior swing highs from late 2015, indicating a potential trend change.

Figure 1. July Coffee Futures - Daily Chart

If coffee does keep moving higher, it sets up a long-term shift in the trend, likely moving the price into the 180 region over the next year. For now though, purchases between 120 and 115, with a stop loss below 113/112 (to give a bit of room in case the price continues to range), present an opportunity to get out near 140 to 150 (consider exiting in stages, at 140, 145 and 150, or moving the stop loss to the most recent target as the price moves above it). This represents an opportunity to capitalize on the early stages of what could be a long-term rally.

The main danger with trading coffee currently is that the price could continue to range or drift lower.

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