Coffee, the holy grail to most human function with more than 2.25 billion cups consumed per day, could be stealing headlines.
Early in 2020, the world was put on lockdown due to the rapid spread of Covid-19, with the infection rate increasing many stocks were trending inversely. This market swing brought opportunities that few pursued, and those few will reap the rewards as change peaks around the corner.
In a dynamic market, change is inevitable. The gradual reopening of the world is causing a rippling rebound effect with Soybean, Corn, Lumber, and Oil prices all swinging higher. But what does this have to do with Coffee?
You might have reacted too late to last year’s market challenge but stay on your toes and search for potential opportunities. Here are my five reasons why Coffee might be turning heads in the future.
- Weather: The number one producer of Coffee is the country of Brazil. Brazil has become a global powerhouse for agriculture production. Right now, Brazil is entering its dry season. Many corn traders are watching the production of their safrinha corn crop. The safrinha corn crop looks to be in trouble as the weather looks to crank up the heat and dryness which is typical for this time of year in Brazil. This hasn’t caught as much attention in coffee yet, or so it would seem based on the rise in corn prices compared to Coffee.
- Global Reopening: The scare of COVID-19 and putting the world on lockdown had a negative impact on coffee. Many other commodities that are used for food and energy saw a quick rebound. Since Coffee is more of a want vs. need the demand has been slow to return. In time the rest of the world will get their vaccination shots and begin to adjust back to normal, with this demand for Coffee will be back to normal.
- Inflation: You can’t hide from the effects of inflation. Inflation will creep into all markets and coffee won’t be an exception. Most investors understand to use commodities as a hedge against inflation. A rising tide will lift all ships. If we truly are entering a time of inflation then Coffee prices should follow.
- Chart: Compared to other commodities Coffee just has not taken off higher. IF we truly are in a commodity supercycle one would think the markets that have been lagging will eventually catch on. Take Corn, for example, corn has taken out all past highs other than the all-time high north of $8.00. Take a look at the Coffee chart below. We are nowhere near all-time highs, and we are closer to being in the bottom third of the past 17 years.
- Time and Energy: The last reason might be the most powerful. All markets have cycles, cycles based on price and time. Most traders can recognize price cycles but in trading timing is everything. There are computers that help track time and price cycles, one subscription service that I have been using in conjunction with my commodity trading is http://www.edegrootinsights.com. Eric does a great job at describing the Matrix that he uses to help point out the price and time cycles. Coffee’s price and time cycle seem to be in a good spot right now for a move. I highly recommend using the Matrix as a tool to help guide your very own trading. Pair the Matrix with our broker services and you can have the confidence that you need to develop your own trading strategies.
The initial Margin on a Coffee contract is just shy of $4,500.00 with today’s prices. If you’re looking at Coffee in your RJO WebOE platform you will see it listed at 149’95 (today’s close). Each tick is $18.75. 149’95 is the same as $1.4995. Every penny move is $375. So a move from $1.4995 to $1.5095 would equal $375. Click here to find out about other soft commodities that you can trade.
“Trading commodity futures and options on futures involve substantial risk and may not be appropriate for everyone. Past performance may not necessarily be indicative of future results.”