In an October 15 Barchart article that asked if Arabica coffee futures bottomed, I concluded:
Coffee can experience wild price swings. Arabica prices rose from below 90 cents per pound in 2019 to over $2.60 per pound in 2022 before correcting below the $1.60 level in 2023. Time will tell if the Arabica futures bottomed at the $1.4205 level. The extended correction could be building steam for a significant move higher or lower over the coming weeks and months.
Nearby December ICE Arabica coffee futures were trading at $1.5490 per pound on October 13. The November ICE Robusta coffee futures were $2,388 per ton that day. In mid-November, coffee prices have increased, and higher highs could be on the horizon.
Arabica futures rally
After rising to the highest price since 2011 at $2.6045 per pound in February 2022, the continuous ICE Arabica coffee futures reached a low of $1.4205 in January 2023. The soft commodity recovered to over the $2 per pound level in April 2023 before falling to a slightly higher low of $1.4370 in October 2023. Since then, coffee futures have moved back into a bullish trend.
The chart shows the nearby December contract was over the $1.77 per pound level on November 13.
Robusta futures move to the upside
ICE Robusta futures rose to a record $2,976 per ton in June 2023.
The chart shows the Robusta futures ran out of upside steam and corrected 22.5% to $2,306 per ton in October 2023. On November 13, the nearby futures contract was trading at $2,620 per ton.
Arabica and Robusta futures were higher than the mid-October 2023 level. Robusta futures reached an all-time high as Vietnamese production has declined. Meanwhile, worldwide inflation has increased production costs for all commodities, and coffee beans are no exception.
Technical levels to watchThe nearby December ICE Arabica coffee futures contract has made higher lows and higher highs over the past month.
The nine-month chart of December Arabica futures highlights the rise to over $1.77 per pound, the highest price since June. The first technical resistance level stands at the June 9, $1.8900 high. Above there, the upside target is $1.9875, the April 18, 2023, peak. Technical support is at $1.5860, the October 30 low, and $1.4370, the October 10 bottom.
The nine-month chart of January Robusta futures shows the upside target is $2,568 per ton, the October 23 high. Above there, the June 20 $2,625 high is the upside resistance level. Support is at $2,296 and $2,223 per ton, the November 1 and October 10 respective lows.
Coffee is a very volatile soft commodity
Aside from inflation that has pushed production costs higher, coffee is highly susceptible to weather events and crop diseases, causing increased volatility over time. Bumper crops over the past years pushed Arabica futures prices below $1 per pound in 2018 through 2020. Supply concerns caused the price to eclipse the $3 per pound level in 1977, 1997, and 2011. The latest rally to $2.6045 was another in a multi-decade series of lower highs for the volatile soft commodity.
Meanwhile, other soft commodity prices have soared over the past weeks and months. The most recent explosive move was in the thinly traded frozen concentrated orange juice futures market, which reached $4.3195 per pound in October 2023, the highest price in history. Before 2023, the all-time peak was in 2016 at the $2.35 per pound level. Nearby cocoa futures traded to a $4,073 per ton high in November 2023, the highest price in forty-five years since 1978. World sugar futures reached 28.14 cents per pound in November 2023, the highest level since 2011. Cotton futures rallied to $1.5802 per pound in May 2022, the highest price since 2011. Soft commodities have been on bullish fire, which could mean that the volatile Arabica and Robusta coffee futures have upside room over the coming months.
Futures are the only way to participate
In 2023, the delisting of the JO ETN product that tracked Arabica coffee futures was not the only soft commodity ETN that limited investment and trading choices. BAL, which tracked cotton, and NIB, that followed cocoa prices higher and lower, also ceased trading. FCOJ never had an ETF or ETN product because of the low liquidity in the orange juice futures arena.
These days, the only way to participate in the coffee, cotton, cocoa, and FCOJ markets is via the ICE futures and futures options contracts. The CANE ETF continues to track world sugar prices.
Volatility creates many trading opportunities, but risk is always a function of potential rewards. In coffee, the ICE Robusta and Arabica futures market is the only game in town for market participants seeking long or short exposure to the price of coffee beans. Futures are leveraged and margined instruments, only compounding the risks in the very volatile soft commodity.
Meanwhile, the recent price action and rallies in the other soft commodities indicate that coffee futures could have lots of upside potential from the current price levels.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
