BREAKING: Coffee surges over 6%

During today’s session investors might observe a strong rebound in coffee prices as gains exceed 6%. What is happening? The current situation may result from several factors. These are the most important ones:

• The prices has rebounded from crucial support zone at $0.95 last Friday. In recent weeks coffee prices have been recovering in that zone, yet the upward movement was limited by $1.00 level.

• Robobank points out that Brazil has already sold 60% of this year’s crops. That could be a crucial signal amid falling coffee stockpiles. 

• Price could have overreacted to recent fears concerning demand “destruction”. As a matter of fact, there is only a certain change on demand side - more coffee is being sold in stores (both traditional and online) rather than in cafes. That shift is a direct result of the pandemic and imposed restrictions. However, it turns out that demand losses will be limited. 

At the same time Bloomberg reports that Q2 2020 will be the worse quarter since 2015, which might lead to closing short positions (obviously these positions were profitable). Moreover, net positioning is highly negative and reached levels from February when prices started a rapid rebound. Apart from that, price sequences look very similar to 2016 and 2017. If the past were to repeat, the current rebound would last longer. However, investors should get ready for further long-term declines once the price reaches $1.20 level.

Coffee is preparing for the worst quarter since Q1 2015. Source: Bloomberg

One could spot a sharp rebound in coffee prices. The price broke not only above $1.00 level, but also above 23.6% Fibo retracement of the 2019/2020 cusp. Source: xStation5