If Brazilian growers had learned a year ago that their coffee crop would experience a greater recovery in 2021 than oil, they would probably have laughed and then went back to tending to their fazenda (farm).
Yet, humor or not, this is exactly what Arabica is experiencing: a year more important than oil.
The most active premium coffee futures contract was up 66.7% year-on-year in New York trading on Wednesday, ahead of the first-month U.S. contract, which posted a gain of 65.6 % since the beginning of the year.
It’s been a long journey so far for arabica, which hit its lowest level in 15 years at 86.35 cents a pound through April 2019, although it may seem like a distant memory for prices in ‘today, which hover near the seven-year high of nearly $ 2.15 were hit in July this year.
Aside from its strong start in October, the Arabica has recovered in six of the past nine months, having lacked in January, March and June.
All graphics are courtesy of skcharting.com
From a poor harvest in Brazil to too much rain in Colombia, the impact of poor weather conditions, along with low crop yields and supply chain issues from the pandemic, have made it difficult for coffee roasters. to source quickly, quality and profitably. beans for their customers.
The squeeze has paid off for long-time growers in the trade as well as arabica growers, who for years have received a pittance for their coffee beans.
But the rallying market is also pinching the world’s largest coffee chains, including Starbucks (NASDAQ :), Costa Coffee and Tim Hortons of Costa Coffee and Restaurant Brands International (NYSE 🙂 – which depend on arabica and have resisted passing the higher costs on to their customers.
According to Jack Scoville, chief crop analyst at the brokerage firm Price Futures Group in Chicago:
“The lack of coffee and freight to transport the available coffee still supports the future of arabica. New York, in particular, has found support in the lack of coffee available in Brazil after extreme weather events. ”
From a weather point of view, Scoville said the rains were patchy each day and almost all areas get rain and some get enough for a week or two to promote the flowering needed for the crop. “It was dry in Brazil, but there was also a big frost there,” he added.
And it’s not just the Arabica that’s in a hurry.
, Asia’s favorite coffee, widely grown in Vietnam and marketed in London, has much the same growing / logistical challenges. Robusta prices are up 56% over the year.
“London is struggling to source coffee from Vietnam due to a shortage of containers to transport coffee out of the country and as the country suffers from a resurgence of the Covid epidemic,” Scoville said.
“Wake up… and smell it! “
But back to arabica: how strong will this rally be?
Sunil Kumar Dixit, Chief Technical Strategist at skcharting.com and regular contributor to Investing.com, says a high of $ 2.86, or 33% above current levels, is possible if arabica maintains its current path.
“The market retested the July high of $ 2.15 despite an extremely overbought reading of the monthly chart’s Stochastic Relative Strength Index,” Dixit said.
“Arabica has advanced in tandem with the bullish swallowing pattern defined by the July candle, which can be confirmed by a close follow above this high leading the way at $ 2.25 – $ 2.35.”
“The model, if confirmed, can set long-term goals for $ 2.86 over the long term.”
But Dixit also warns of the possibility of consolidation and downward side action.
“Going below the 5-day exponential moving average of $ 2.04 and the 5-week EMA of $ 2.02 should be seen as the first signs of exhaustion targeting the average Bollinger[®] Band $ 1.94 and 50-day EMA $ 1.88. “
“The bullish load is a bit too powerful for this to happen, however, and we are likely to see a further breakout to the upside rather than the downside. As both fundamentals and techniques show, it’s truly the year of arabica Wake up and smell the coffee!
Disclaimer: Barani Krishnan uses a range of perspectives outside of his own to bring diversity to his analysis of any market. For neutrality, it sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.