Mmmm, Coffee

Nearly a year ago, I called a 50% decline in the price of Coffee (Arabica Beans)

While that view was formed and based on a few factors, in that note, I shared a chart denoting the ‘extreme’ percentages that Coffee was trading above its 200 week moving average.

Back then, early February 2022, Coffee was trading at $2.60. 

To be particular, my call was for the price of Coffee to trade back down to it 200 week moving average.

Today, it is trading at $1.52 which is right on its 200 week moving average.

Then 2 months ago, I provided an update about this trade

That original note was designed to suggest that the price of Coffee had no business being up in that stratosphere, while it also hinted and translates into some other points;

a) buyers/importers of coffee should consider taking a chance and not locking in future delivery at those high prices, 

b) it was a terrific time for coffee farmers to sell their wares,

c) companies such as Nestle and Starbucks would have experienced some margin compression,

d) speculators should be selling and,

e) other speculators may consider ‘shorting’ Coffee.

Today, these messages can start to be reversed.

And now….

So mean reversion is complete, however my work suggests reasonable enough probability of lower prices ahead, putting my more heavier accumulation somewhere between $1.10 – $1.23.

Incidentally, the recent intra-day low seen was $1.42.

Albeit my strategy is to nibble at the position (with a lower percentage allocation) at current prices, I will wait for my signals and lower prices, before increasing the size of the allocation.

January 17, 2023

by Rob Zdravevski

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