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Coffee: Is All the Good News Priced?

After a late 2023 rally, coffee prices consolidated their gains in early 2024. That was then followed by a resumption of the uptrend (albeit a volatile one). In particular, the strong rally in April (+25%) was followed by a pullback, and then new YTD highs in recent weeks.

Poor weather conditions has been the key driver of stronger prices this year. In Brazil, for example, dry weather has lowered crop yields; while, in Vietnam, high temperatures and drought have restricted supply. Those two countries account for nearly 50% of the global coffee supply.

From a positioning perspective, though, much of that newsflow is already priced in. That is, speculative positioning is heavily net long and back at the high levels reached in both April this year, and in early 2022 (fig 1). The long trade is therefore crowded; sentiment is bullish (fig 1a); while technical (i.e. price based) models are generating clear SELL signals (e.g. see fig 1b). All of which adds to the case for some giveback in coffee prices (at least in the short term – and particularly in the absence of further supply challenges/bullish newsflow).

Fig 1: Speculative net positioning in coffee futures vs. coffee price (USD/lb)

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Fig 1a: Coffee CONSENSUS sentiment vs. coffee price (USD/lb)

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Fig 1b: Coffee short term ‘technical’ scoring system vs. coffee price (USD/lb)

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