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Coffee Futures Slipping into Bear Market Territory

December 7, 2016 at 18:14 by Andrew Moran

Coffee futures are heading into bear market territory over rising global supplies. With Colombia increasing production and the Brazilian real gaining momentum, coffee supplies may not actually be tightening after all. This means that coffee prices are slipping and traders may be bearish moving forward.

March Coffee C futures tumbled 0.1% to $1.4185 per pound at 16:50 GMT on Wednesday on the ICE Futures exchange. Coffee futures were down 1.5% at one point before paring some of its losses.

Coffee futures have been plummeting ever since they reached their peak in November. Coffee prices have plunged around 20% over the past month, which means that the commodity may be soon entering into a bear market. If this decline lasts a little bit longer then traders will declare coffee as a bearish trade.

There are two primary factors for coffee’s losses this month: Colombia and Brazil.

The Brazilian real currency has been making gains against the US dollar over the last 30 days. As political turmoil cools down, fears over a Donald Trump presidency subside, and the nation’s stock market going higher because of its mining sector, the real has been getting a real boost against the greenback. A stronger real makes the nation’s commodities, like coffee and oranges, less attractive to investors.

In Colombia, coffee output surged 1.65 million bags last month, which represents a 25% increase year on year. Coffee exports also have risen 14.6% year on year to 1.2 million tonnes. Colombia’s exports started to return to normal following the aftermath of a truckers’ strike, which had dampened figures since October.

Coffee futures were hit last week when an upbeat supply report was released. Marex, a coffee trading firm, suggested that despite the lack of supplies for robusta, Arabica would fill in the gap. This means that supplies would be able to meet the global demand, even with consumers’ appetites for coffee remaining fierce.

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