Today's Spotlight Market

The Coffee market has suffered from weak demand and oversupplies, thanks to a record Brazilian harvest. The recent strength of the US Dollar squashed a potential rally. Also, many producers used the bump in prices to sell the market. Exports from Brazil are expected to pick-up steam in the coming weeks, which could alleviate some of the bearish pressure on the market. Technically, it looks as though Coffee prices could continue to trade sideways, with a slight near-term bullish bias coming from technically oversold conditions.

Fundamentals

Soft demand has plagued the Coffee market, resulting in prices trading at their lowest level in over a month. Export demand from Brazil has been very lackluster, despite the record harvest there. Storms in Brazil were expected to damage crops, however, the actual damage was far less than forecast. Vietnam is facing dryer, warmer weather than previously expected, which has bolstered cash market prices in the country. On a global scale, the worsening Vietnamese weather has taken a back seat to ideal growing conditions in Brazil. Brazilian flowering has been very good so far, which should be aided by moderate temperatures and moisture.

Technical Notes

Turning to the chart, we see the December Coffee contract approaching support at the 160.00 level. If Coffee is unable to hold 160.00, the next area of support can be found near 154.00, which can be seen as critical. The price action over the past several months has seen prices tightening, forming a wedge formation. The range is still relatively wide, suggesting prices could continue to trade sideways and tighten further before breaking out. The recent 20-cent drop has resulted in the RSI approaching oversold territory, which may be supportive of prices in the near-term.


Rob Kurzatkowski, Senior Commodity Analyst

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