A Coffee Price Forecast For 2019

ABN Amro takes adds a very interesting perspective on this point which we consider an ‘intermarket effect’.

Approximately 35% of the global supply of coffee beans comes from Brazil and the trend in the Brazilian real therefore has a strong influence on coffee pricesIn the period from January to August, the real fell by more than 25%. This was caused by the trade dispute between the US and China and the stronger dollar. This was followed by a recovery period and the real rose 6% until early December. The recovery was fueled by a decline in the electoral uncertainty in Brazil, optimism among investors about possible reforms and, ultimately, the election victory of Jair Bolsonaro.

For 2019, ABN AMRO foresees a stronger real against the dollar, mainly due to US economic policy and a more favourable investment climate for emerging markets. Our USD/BRL forecast for year-end 2019 is 3.4.

The coffee price will rise due to the stronger real as coffee is largely traded in dollars on international markets. The stronger real makes coffee less valuable and that gives traders in Brazil an incentive to sell less in international markets in anticipation of higher prices. As a result, the availability of coffee in external markets decreases and this will have an upward effect on prices.

Similarly, Bloomberg adds to this that the weakening of the Brazilian real and the Colombian peso against the dollar also played a role in the drop by encouraging local farmers to sell more of their coffee, which is usually priced in the greenback. So did the worst decline in commodity prices since 2015 amid rising interest rates in the U.S.

As we check the Dollar to Brazilian Real long term chart we see that the Real indeed arrived at a very important point: triple resistance. Moreover, with the U.S. Dollar showing signs of an intermediate topping pattern, as explained on our dominant trend monthly review we tend to agree with ABN Amro that the Real might appreciate against the U.S. Dollar in 2019. We first want to see a breakdown in the USD/Real currency pair shown below. It is an absolute condition before putting capital at work in the coffee market!

brazil real 2019


Coffee Price Forecast 2019: Commitment of Traders

The trend in speculator positions (‘Commitment of Traders’) also has a strong impact on coffee prices. The number of short positions has declined sharply since the end of September on short covering. This means that speculator sentiment regarding the coffee price has improved and speculators assume that the price pressure on coffee will decrease. This is largely based on the expectations concerning the Brazilian real and a stronger demand for coffee at the current relatively low price.

View single page >> |

Disclaimer: InvestingHaven.com makes every effort to ensure that the information provided is complete, correct, accurate and ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.