Plunging Supply, Rocketing Demand Encourages Longs On Coffee

According to estimates by Euromonitor International, U.S. per capita consumption of hot coffee will reach 3.1 kilograms in 2016, rising from 3 kilograms in 2015. These levels of consumption also match the record achieved in 2013. Furthermore, a report from the U.S. Department of Agriculture reported that global consumption over the next year that starts in October will rise 1.2% to the high level of 150.8 million bags. Demand in China, Japan and India will climb further.

On the supply side, warehouses monitored by the International Coffee Organization have reported dropping stocks for 11 straight quarters, the longest streak since 1995. More importantly, recent heavy rains in Brazil have hurt the coffee crop, posing a big threat to production levels.

The tighter supply due to unfavorable weather, and increasing global demand, continue to tighten coffee markets, lifting the coffee price higher. On the hourly chart, the commodity is in a bull move, having climbed to 143.35 at the close yesterday. The parabolic SAR has changed its direction and crossed below the price movement, suggesting that the bull is stepping in.

Trade suggestion

Buy stop at 143.54, Take profit at 143.79, Stop loss at 143.30

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