Coffee fundamentals indicate deteriorating demand and oversupplied conditions could soon pressure prices to 15-year lows. 

A global surplus of 3.5 million bags is expected in 2020-21 as Brazil expects a record crop after a lower yield in 2019. To some degree, this had been anticipated by the market.

Adding to concerns about a bulging supply imbalance, the Brazilian real has dropped 5% in the last few weeks versus the U.S. dollar. Coffee farmers in Brazil who fear continued real weakness are incented to deliver more and more coffee for export, even at the current low prices.

Expectations for demand growth, the one positive variable that had supported price increases, have been dialed back in light of the global pandemic. Recent data from the International Coffee Organization revealed global arabica coffee exports of 82.75 million bags in 2019, a six percent increase over 2018, and growth had been expected to continue in 2020 until lockdowns tempered the optimism. - a Charles Schwab commodity report said, seen by FXStreet. 

Now knowing the bearish fundamental backdrop, Reuters Commodity Desk forecasts a significant "downward wave (c) " that could result in coffee prices reaching $0.6380 per lb in the first half of 2021. 

New York coffee may seek a support zone of $0.8760-$0.9110 per lb next quarter, to stay around this range or bounce moderately towards $1.08 before dropping again.

The support at $0.9110 is provided by the 76.4% projection level of a downward wave (c) from $1.7955. This wave is capable of traveling to $0.6380.

However, the support triggered a decent bounce in May 2019, which lasted until December 2019. This barrier is likely to cause another weaker bounce.

It must be noted that the calculated projection levels are not perfect. There might be a brief piercing below $0.9110. The expected bounce may not occur until coffee finds a lower support at $0.8760, the May 2019 low.

Probably, the second bounce will be limited to $1.08. Based on this outlook, coffee may be mostly range bound between $0.8760 and $1.08 in the third quarter. A fall below $0.8760 could be extended into the range of $0.6380-$0.7955.

A detailed study on the daily chart reveals the progress of a downward wave C from $1.2905, which may eventually travel to $0.8615, its 100% projection level, very close to $0.8760.

Resistance is at $1.0255, a break above which could suggest an earlier-than-expected development of the bounce towards $1.08.

- Reuters Commodity Desk 

Virus pandemic crushing demand, oversupplied conditions, and no V-shaped global economic rebound has likely resulted in the great coffee bust of the early 2020s