From the May 01, 2012 issue of Futures Magazine • Subscribe!

Coffee crashing

Hot commodities

Since putting a high around $308 in May of last year, coffee prices have fallen steadily with prices recently dipping as low as $180. According to analysts, most of the decline can be attributed to one producer: Brazil.

“This is an on-year for the Brazilian harvest and there have been rumors that we could have the largest harvest ever for coffee out of Brazil,” says Spencer Patton, chief investment officer at Steel Vine Investments. He says that although the prices above $300 were “unbelievably and unjustifiably high,” we probably are getting close to a fair-value price for coffee, and even is forecasting a 10%-15% bump in prices in the near future. Patton sees short-term support in May coffee at $170 and resistance at $190.

Shawn Hackett, president of Springer Financial Advisors, agrees that Brazil has been the major cause for the bear market in coffee and expects the upcoming Brazilian harvest to play a big role in its price going forward. “We are coming up to a surplus cycle. We came from a very tight market, and although the upcoming harvest isn’t going to be gargantuan, just the fact that it is larger than normal will take the edge off,” he says. Hackett expects coffee to begin turning around right before the Brazilian harvest, around June or July. Until then, though, he says his worst-case scenario has coffee spiking down to $150 if there is another drop in commodities.

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