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

Coffee prices get a jolt

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After a months-long drop, coffee prices are poised for a rebound this year, according to analysts. Spencer Patton, chief investment officer at Steel Vine Investments, says Brazil’s “enormous resilient harvest” contributed to an oversold market, driving down prices for the better part of a year. But, he says, coffee prices have rallied in the last few days, suggesting that the bearish trend may be subsiding. “The fact that coffee was up more than 3% in a day when the markets are getting crushed really shows you how strong this reversal could be,” he says.

Patton does warn that the reversal could stall if global economic woes worsen. Financial uncertainty in Europe, which has a high per capita coffee consumption, poses a particular threat. “If people want to save money,” Patton says, “they’re going to cut that $4.00 cup of coffee.” He foresees a 5%-10% relief rally, with support at $150 per pound and resistance at $180.

Shawn Hackett, president of Hackett Financial Advisors, agrees that falling currencies have caused “more selling than would otherwise be the case,” particularly with the weakening Brazilian real. “Even though U.S. dollars have lost half of their value, they haven’t lost nearly as much in local currency in Brazil,” he notes.

Still, Hackett expects a period of sideways trading later this year, followed by an uptick in the market in the first half of 2013. “If I was a roaster, if I was an investor, I’d be looking at this period from now into the fall as a point to accumulate coffee for an eventual turn higher,” he says. He sees a bottom of $150 per pound.

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