Coffee Trading forecasts and signals

Raw material prices are rising. When the global economy recovers, how long can the boom last?Doug King created his hedge fund at the dawn of the commodity supercycle in 2004. It was just in time: due to insatiable demand from China, prices for everything from oil to copper rose to record highs. Investors flooded the commodity sector. At the peak of sales, King's Merchant Commodity Fund managed approximately $2 billion.But the boom suddenly stopped after the global financial crisis of 2008 and the beginning of the shale revolution in the United States. Prices have fallen, big institutional money has come out, and many specialized hedge funds have closed.Fast forward more than ten years. For King, one of the best periods of his career has begun: a massive boom in raw materials has lifted his hedge fund by almost 50% this year, as commodities, from steel to soybeans, have reached multi-year highs. And now everyone, from pension funds to individuals who sell commodities, makes money from them. And the only question is whether this is a temporary phenomenon after the pandemic or a signal for longer-term changes in the structure of the world economy."We are experiencing a structural inflation shock," King said. "There is a lot of pent-up demand, and everyone wants everything now, right now."For the first time since the pre-crisis years until 2008, the commodity boom means that central banks are concerned about inflation. The rally will also have a political impact.With an oil price of about $70 per barrel, Saudi Arabia and Russia are once again leading the global energy market – a remarkable return after negative prices just over a year ago. The boom is also an undesirable phenomenon for politicians who are resisting the climate crisis: rising commodity prices will make the transition more expensive.China, which depends on imported raw materials to supply millions of factories and construction sites, is so nervous that the government has tried to lower prices by threatening speculators. To some extent, this worked, as copper lost its positions achieved this year. But on average, prices remain high: iron ore is still close to a record, steel prices in the US have tripled this year, coal has risen to a 13-year high, and natural gas prices are rising.Even after the recent pullback, the Bloomberg Commodities Spot Index, which takes into account the prices of 22 commodities, rose by 78% compared to the minimum of March 2020.And crude oil, the most important commodity in the global economy, showed significant growth this year. This prompted traders and Wall Street banks to talk again about the possibility that prices will exceed $100 per barrel for the first time since 2014.As prices rose, so did Wall Street's interest. The annual Robin Hood Investor Conference, which brings together hedge fund luminaries every year, from Paul Tudor Jones to Stanley F. Druckenmiller and Ray Dalio, in early June, included a discussion on commodities. For the first time in the last five years, the conference was given time to discuss commodities.Jeff Curry, a veteran commodity researcher at Goldman Sachs Group Inc., who advocates a long-term bull market for commodities despite the recent sell-off in metals and grains, says there is room for significant investment in the market."Commodities are back in fashion," Curry said. Despite the hype due to sky-high prices, the sector was not able to attract large cash flows, as it was during the boom of 2004-2011.Those investors and traders who have already invested in commodities, betting on recovery after the pandemic, were able to make a profit.Take, for example, Cargill Inc. The world's largest agricultural commodities trader made more money in just the first nine months of the fiscal year than in any full year in its history, as net profit exceeded $4 billion.Or Trafigura Group. It is the second-largest independent oil trader in the world, whose net profit of more than $2 billion in the six months to the end of March was almost the same as for the previous best full year."Our core sales units are operating at full capacity," said Jeremy Weir, chief executive of Trafigura.However, for consumers, the commodity boom means memories of high inflation. For now, companies are mostly taking the brunt of the impact, pushing manufacturing inflation in some countries, including China, to its highest level in more than a decade. But sooner or later, consumers will also pay for it.Companies, from Unilever Plc to Procter & Gamble Co., announced plans to raise prices in the near future."We are seeing levels of commodity inflation that we haven't seen in a very long time," Graham Pitketley, Unilever's chief financial officer, told investors after the release of first – quarter results. "The commodity inflation that we are seeing affects all companies."The speed and scope of this rally, which affected dozens of raw materials from vegetable oil to coal, prompted many to talk about a new commodity supercycle, similar to the one that began almost two decades ago, when China's rapid industrialization changed the structure of the world economy. economy.Economists usually define a supercycle as a period of abnormally high demand that oil companies, mining companies and farmers are struggling to meet, causing a rally that lasts longer than the usual business cycle. Before China, the century of modern history witnessed three different commodity supercycles, each of which was caused by a transformational socio-economic event. The industrialization of the United States gave rise to the first in the early 1900s, global rearmament gave rise to the second in the 1930s, and the recovery of Europe and Japan after World War II gave rise to the third in the 1950s and 1960s.The appearance of the fifth supercycle would be a big event. The price rally confirms the talk of a new boom: the Bloomberg Commodity Spot Index, consisting of 23 commodities, is almost 500 points, which corresponds to the peaks of 2007-08 and 2010-11. And yet, what is more likely is that the world is still experiencing the impact of a China-led supercycle, which is now loaded with contradictory economic shifts caused by the coronavirus pandemic.Change in the value of commodities in one year The speed and scope of this rally, which affected dozens of raw materials, from vegetable oil to coal, prompted many to talk about a new commodity supercycle, similar to the one that began almost two decades ago, when China's rapid industrialization changed the structure of the world economy.Economists usually define a supercycle as a period of abnormally high demand that oil companies, mining companies and farmers are struggling to meet, causing a rally that lasts longer than the usual business cycle. Before China, the century of modern history witnessed three different commodity supercycles, each of which was caused by a transformational socio-economic event.The industrialization of the United States gave rise to the first supercycle in the early 1900s, global rearmament gave rise to another in the 1930s, and the recovery of Europe and Japan after World War II gave rise to a third in the 1950s and 1960s.The appearance of the fifth supercycle would be a big event. The price rally confirms the talk of a new boom: the Bloomberg Commodity Spot Index, consisting of 23 commodities, is almost 500 points, which corresponds to the peaks of 2007-08 and 2010-11. But it is more likely that the world is still under the influence of a super cycle led by China, which is now being spurred by the contradictory economic changes caused by the coronavirus pandemic.Initially, Covid was bad news for commodity demand. The world was locked up, travel was reduced, factories were closed. The price of everything from oil to copper followed consumption, falling sharply between March and May last year. But after the first few months, the world began to get back on its feet, and consumption patterns changed towards commodities.To understand what happened, it is necessary to understand the typical relationship between the demand for goods and well-being. As a rule, poor countries consume little raw materials, because most of the costs go to meet basic needs, such as food and housing.The optimal place for commodities is countries with a per capita income of $4,000 to $18,000 – the average income range that China entered in the early 2000s. This disproportionately affects the demand for commodities, since it depends on the level of urbanization and industrialization of countries. With this range of per capita income, families have the money to buy cars, household appliances and other goods that require a lot of raw materials.Industrially developing countries are also building railways, highways, hospitals and other public infrastructure.The demand for goods above $20,000 per capita begins to decline as the wealthier segments of the population spend the increase in wealth on services such as better education, health care and recreation.The coronavirus pandemic has changed this dynamic. Since many families are isolated, spending is shifting from services to goods, even in the wealthiest countries, such as the United States. In many ways, American and European consumers have been behaving in the same way as the population of developing countries for several months, spending money on buying various goods, from new bicycles to televisions.The US economy is the best example of this trend. Overall consumer spending remains below the trends of 2018-19, but this hides a huge discrepancy between spending on goods and services. According to the Peterson Institute for International Economics, household spending on goods is currently 11% higher than the level observed before the pandemic.  At the same time, spending on services such as recreation, restaurants or entertainment remains 7% lower than before the appearance of the coronavirus."Ultra-accommodative monetary policy, unprecedented fiscal stimulus, pent-up demand, strong household balance sheets and record savings all together paint a picture of a steady and confident growth trajectory," said Saad Rahim, chief economist at Trafigura. Fiscal stimulus has other parallels with emerging markets, as Western governments target infrastructure spending by promising to rebuild highways, railways and bridges.Governments are also striving to build a greener future in order to abandon fossil fuels. Although this is bad news for the coal and oil markets, it means an increase in demand for raw materials such as copper, aluminum and battery metals such as cobalt and lithium, which are key to the transition to green energy."Commodity prices will remain high for a long time to come," said Ivan Glasenberg, the outgoing CEO of commodities giant Glencore Plc. According to him, for the first time, two superpowers of the world, the United States and China, simultaneously promoted major infrastructure projects to save their economies from the impact of the coronavirus pandemic.The offer is trying to catch up. Some of the bottlenecks are caused by deliberate actions by producing countries, such as the OPEC+ alliance, which cut oil production last year. And another shortage is due to the complexity of the work of mines, smelters and farms at the height of the pandemic.The decisive factor for the duration of growth is the structural restriction of supply, which means that high prices may not work as a signal to increase production and, ultimately, return the market to equilibrium.The forces that slow down the reaction of the proposal are twofold. First, there are more and more demands from the fighters against climate change that the same production of fossil fuels, such as coal, oil and gas, be reduced. Secondly, the shareholders of the companies demand that the management pays them higher dividends, which, in turn, leaves less money for expanding mines or drilling new wells.The impact of these forces is already evident in some areas of the commodity market, where companies stopped investing in new supplies several years ago. Take, for example, thermal coal. Mining companies have been cutting costs since at least 2015. As demand increased, coal prices jumped to a level not seen in the last 10 years. The same thing happened with iron ore, whose prices soared to a record high at the beginning of this year. The next one is likely to be oil, where companies are significantly cutting costs.For commodity bulls like Doug King, this is a sign of doubling. "This is the beginning of a proper boom cycle, and this is not a temporary surge," he ...

Scientists in Germany conducted a study, the results of which showed that in the future, the world may form a "coffee" crisis. It will be caused by global warming. It will lead to the fact that the land suitable for growing high – quality coffee-Specialty coffee-will disappear on the planet. In particular, scientists believe that Ethiopia, on the territory of which the world's most popular Yirgacheffe coffee is grown, may lose 40% of the land suitable for this purpose. At the same time, the area of agricultural land that can only be used for growing medium-quality coffee will increase. Scientists in the course of the study studied the degree of influence of almost 20 climatic factors that affect the quality of five varieties of coffee in the Specialty coffee category. If the climate becomes warmer, the berry pulp will ripen faster than the coffee grain. This will lead to a significant deterioration in the quality of coffee beans. Scientists also noted that in the event of a warming climate, it will be especially difficult for small farms that grow ...

Despite the fact that coffee is one of the most popular drinks in the world, it is not among the top investment tools, judging by the enthusiasm of investors. Compared to other commodities such as gold, silver and oil, coffee is not so popular. But people who invested in coffee in 2020 or earlier are now making a profit, as coffee prices reach their highest since 2015.Let's look at the coffee market to better understand the price dynamics and get an answer to the question whether it is worth buying coffee at current levels.Coffee as a financial instrumentInvestors can buy and sell coffee through the futures exchange. Coffee contracts are traded on the CME Group. Each futures contract is 37,500 pounds. Contracts are priced per pound. If coffee futures are traded at $100 per pound, then the full value of the contract is $37,500.Platforms where you can buy contracts for difference (CFDs) allow you to speculate on goods and other instruments. Instead of immediately buying expensive futures contracts, investors trade CFDs, the value of which rises or falls depending on the movement of the underlying asset. In our case, this is the price of coffee.CFD brokers offer leverage, so investors using leverage can buy more CFDs by investing less capital. It is necessary to remember that leverage can increase your losses if the market goes against you.There are two types of coffee: Robusta and Arabica. At the same time, Arabica coffee beans account for 75 percent of world production. Arabica is sold at a higher price compared to Robusta. Key coffee giants such as Kraft, Procter & Gamble, Nestle and Sara Lee, acquire almost half of all coffee produced for their own use.Coffee beans grow on small trees, and it is vital that they grow under optimal weather conditions. Bad weather can affect the entire global market.Brazil is one of the largest coffee producers, and under normal conditions produces almost 40% of the world's coffee. Brazil, Vietnam, Colombia, Indonesia and Ethiopia account for about three-quarters of the world's coffee production.Comparison: Arabica vs RobustaArabica    Higher acidityLower caffeine contentSweet and mild tastePronounced and fragrant notesRobustaLower acidityHigher caffeine contentStrong, rich and bitter tasteBurnt wood/rubber fragranceThe forecast of coffee prices depends on the drought in BrazilCoffee is not the only product whose price has increased significantly over the past year. News about coffee prices and analytics are not nearly as detailed as for gold or oil.Gold and oil have more noticeable growth catalysts, so it is easier for beginners to invest in them. For example, the growth potential of gold is based on concerns about inflation, and oil prices correlate with the results of OPEC+ meetings.So, what determines the prospects and trends of coffee prices?Perhaps the most notable factor is the ongoing drought in Brazil. Reports of a devastating drought began to appear in the headlines at the end of 2020.The USDA said in a June 2021 report that global coffee production in 2021/22 is projected to decline by 11 million bags to 164.8 million, mainly due to weather conditions in Brazil.It seems that there is no solution to the problem of drought in Brazil in the near future. And this bodes well for the forecast of coffee prices until 2023.Commerzbank agricultural analyst, Dr. Mikaela Helbing-Kul, said that if the drought lasts until August, its consequences will also affect the harvest season of 2023.Nevertheless, traders and investors are wondering whether the recent surge in coffee prices is the result of the fact that the market has taken into account the drought factor, or whether it is still worth waiting for a bullish trend in prices.Read more: How to determine the beginning of the movement of the "bull" market?Coffee price forecast: assessment of key levelsCoffee in July was trading around 154 USD per pound. Key Support and Resistance levels for Coffee:Support:128 USD - minimum on April 16137 USD - minimum on May 3145 USD - minimum on May 24Resistance:165 USD - June 1 maximum182 USD - the maximum of 2015200 USD is a psychologically important levelThis does not mean that coffee prices will not be able to exceed these levels. In fact, coffee was trading below 100 USD per pound in 2020 and above 300 ISD per pound in 2011. Looking even further, the last time coffee prices traded above $300 was in 1997.Although it can be difficult to make a forecast of coffee prices for a couple of years ahead, since it depends too much on weather trends, it is a little easier to assess the short-term trend.And a short-term rally first formed on the charts in July 2020, when the price of coffee exceeded the 20-day moving average. The charts show that coffee broke up its moving average in April 2021 at about 130 USD, and then the momentum helped it to exceed 160 USD.The price of coffee very quickly reached a maximum of 165 USD on June 1, 2021, a level not seen since October 2016, and continued to trade below the moving average, where it was at the beginning of July. This in itself signals a bearish mood on coffee prices, but it is necessary to analyze other indicators before making any conclusions.Coffee, D What's next with the forecast of coffee prices?The Relative Strength Index (RSI) has recently reached overbought territory three times, the last time around April. At the beginning of July, the RSI was around 50, this is the middle of the range, so it won't help us much.Investors have three options. Sell coffee, open a long position on coffee, or wait until the picture becomes clearer.The arguments in favor of selling coffee are based on the belief that the market has already taken into account the ongoing drought in the price, and the price decline from 165 USD to current levels is only the beginning of a long downward trend.In this case, investors should consider setting a stop loss above 165 USD, for example, at 170 USD. If the coffee successfully overcomes the resistance level of 165 USD, this may be a sign that selling is not the correct option.But the last few days have shown that buyers are trying to raise coffee prices significantly above the level of 150 USD. Combined with the fact that coffee prices are noticeably higher than they were at the end of 2020, we can assume that the rally still has prospects.In this case, a stop loss at the level of 145 or 137 USD is appropriate, since a drop below the support level indicates that there may be a rally.Read more: Bulls and bears, as well as other animals on the stock exchangeFrequently Asked QuestionsIs coffee a good investment?Although coffee is not included in the list of the 5 best-selling commodities, it can also open up attractive trading opportunities. Do your own research and think about trading coffee with contracts for difference. CFDs allow you to benefit from price fluctuations regardless of the direction of the market. Open a long position if you think that the price of coffee will go up, or a short position if you think that it will go down.Will the price of coffee increase in the future?Coffee prices rose sharply between the middle and the end of 2020, reaching a multi-year high of $165 in June 2021.What factors influence the price of coffee?Weather is one of the most important variables that affects the price of coffee. Other factors include rising demand worldwide. For example, the coffee chain giant Starbucks plans to add 20,000 new stores by 2030, bringing the total number of stores to 55,000 units. If the coffee chain succeeds in new markets, the price of coffee may ...