Coffee Futures––Coffee futures in the May contract is trading slightly higher for the 2nd consecutive session up 40 points at 128.50 a pound as prices are right near a 3 week high. I have been recommending a bullish position over the last several weeks from around the 126 level and if you took that trade continue to place the stop-loss at the 106 area as an exit strategy as the risk is high on this historically volatile commodity.
Later this week we will roll over into the July contract due to expiration as the stop loss will also change as I still believe higher prices are ahead and if you take a look at the monthly chart we are right at a critical level as the downtrend line remains intact, but by the skin of its teeth and if the 130 level is broken I think we can start to move higher in a relatively quick manner.
Fundamentally speaking dry conditions in Brazil have provided support to coffee prices on Monday after Somar Meteorologia reported that rain last week in Minas Gerais, Brazil’s largest arabica growing region, measured 4.7 mm, or only 22% of the historical average.
Coffee prices also have support from supply concerns after Citigroup said last Tuesday that arabica coffee would have a “sizable” deficit of -7.5 mln bags for the 2021/22 crop cycle as prices also have support due to dry conditions in Brazil.
Coffee is trading above its 20 & 100 day moving average as the trend has turned to the upside as I also have bullish recommendations in orange juice and cotton while keeping a close eye on sugar as I think that commodity is also bottoming so stay long as the risk/reward remains in your favor.
CHART STRUCTURE: IMPROVING
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