Coffee price prediction: the next season may not be any better
- Coffee price hit its highest level since October 2014 on Friday.
- It is in the overbought territory amid the ongoing supply woes.
- Analysts forecast a decline in production in the next season based on the biennial cycle.
Coffee price has been trading close to the 7-year high it hit on Friday. The current supply woes may extend to the next season if sufficient rainfall is unattained.
Coffee price is trading close to the 7-year high reached on Friday amid the ongoing supply woes. Brazil, which is the leading producer of the commodity globally, unfavorable weather has impacted output in the current year. Soaring fertilizer costs and shipment snarl-ups are further impacting the market. Interestingly, there are already concerns over the state of production in the next season.
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The Arabica variety, which is preferred by Starbucks and other major establishments, is subject to biennial cycle. This means that a high-yield season is typically followed by a low-yield one. In Brazil, a high-yielding season is expected in 2022/23.
However, analysts expect the output to be 20% lower than the comparable season of 2020/21. Safras & Mercado attributes the decline to the frost and drought that has affected the Brazilian crop in the current year.
In the 2020/21 season, the country produced about 70 million bags of coffee. Notably, it was a record figure for the commodity. In comparison, the company predicts that output in 2021/22 will be 56.5 million bags. Nonetheless, seeing that harvesting is set to begin in May/June 2022, substantial rainfall could improve the prospects.
Coffee price prediction
Coffee C futures, which is global benchmark for the Arabica variety, is trading steadily above the psychological level of 200. Notably, the zone has been a crucial one for the commodity since late July. On Friday, it rose to its highest level since October 2014 at 224.10. Prior to that, it had been within a horizontal channel for a month with the lower and upper borders at 198.25 and 212.35 respectively.
While it has since pulled back from its 7-year high to the current 220.95, the rallying is ongoing. On a three-hour chart, it is trading above the 25 and 50-day exponential moving averages. Besides, with an RSI of 72, it has gotten into the overbought territory.
In the immediate term, I expect it to hover round 220 in an attempt to get out of the overbought zone. As such, it may trade within a tight range of between Friday’s high of 224.10 and the resistance-turn-support level of 215.35.
A decline below the lower border will place the support along the 25-day EMA at 211.54. On the upside, a move above the resistance level at 224.10 will have the bulls eyeing 2012’s high of 239.95.