Our annual coffee price forecast has a bullish bias towards the end of 2020 and especially going into 2021. The leading indicators for the future price of coffee are bullish. More importantly as soon as the Brazilian Real turns bullish it will create an explosion in the price of coffee. The potential upside is substantial as we forecast the coffee price to double in a short period of time. Timing will be crucial, and it only requires to closely watch 2 specific data points: the bullish breakout price point of $1.10 combined with a bullish trend in the Brazilian Real. With this we add another important prediction to our long series of annual forecasts. Our coffee price prediction spans over 2 years, so it’s both a 2020 forecast as well as a 2021 forecast. This coffee price forecast is one of InvestingHaven’s research team must read forecasts.
We apply our regular forecasting template and method to this coffee price prediction. We look at the leading indicators that apply to predicting the price of coffee. We analyze the trend(s) on the long term coffee price chart. We then map our leading indicators to the chart analysis.
Summary of our Coffee Price Forecast for 2020 and 2021
Let’s start with our conclusion. Readers who don’t want to understand our underlying forecasting method can ignore the rest of the article.
The coffee price leading indicators are gradually becoming supportive for higher coffee prices going into 2020. The price chart suggest a major breakout or breakdown is coming. In which direction will coffee move?
Everything will depend on the direction of the Brazilian Real against the US Dollar. It is clear that the Real is in a bottoming formation against the USD. The odds favor a bullish trend will start for the Real.
If that’s the case, and that’s a big IF, it will lit a fire under the price of coffee. All we need in that scenario is a break above $1.10 for the coffee price to break out!
When does this bullish scenario invalidate? In case the Brazilian Real continues to weaken against the USD and/or the price of coffee falls below $0.95.
In the bullish scenario we see the price of coffee doubling against current price levels at the time of writing. A peak of 2 USD in 2021 (or late 2020) is realistic. This is not an average price for 2019, it is a peak.
Note that we are not interested in the price of a coffee cup in this article. Obviously we only look at the spot price of coffee from an investment perspective. We realize we are stating the obvious, but let’s make sure readers know exactly what we talk about. Readers can find tips on how exactly to invest in coffee in this article, we will not cover investment instruments.
Our Coffee Price Predictions for 2020 and 2021
This table provides a summary of our prediction of the coffee price trend in 2020 and 2021.This is our forecasted coffee price for the coming years. Prices reflect coffee's spot price.
|Year||Coffee price forecast||Conditions||Invalid|
|2020||Mildly bullish||Remains in its triangle chart pattern||If coffee breaks below $0.95 + Real bearish|
|2021||Wildly bullish||Breaks out of its triangle + Brazilian Real bullish||If coffee breaks below $0.95 + Real bearish|
|2022||Neutral||Consolidates||If coffee breaks below $0.95 + Real bearish|
For every forecast we apply a set of leading indicators to predict future price direction. When it comes to coffee we have 3 leading indicators which tend to determine the future price of coffee.
The 3 leading indicators for coffee’s future price are global supply demand direction, the Brazilian real against the US Dollar direction, and coffee’s COT report (futures market positioning).
We map those 3 leading indicators against the long term chart patterns.
That’s how we derive this coffee price forecast for 2020 and 2021.
Leading Indicator #1: Global Supply Demand for 2020
First, the global supply vs demand for coffee is an indicator that we interpret directionally. In other words we look at major changes in global shortage vs deficit. This is one of the drivers for the coffee price.
As per this report Coffee World Markets and Trade published in June (’19) the world coffee production forecast for 2020 comes in at 169.1 million bags. That’s 5.4 million bags (60 kgs) lower than the previous forecast.
World coffee production for 2019/20 is forecast 5.4 million bags (60 kilograms) lower than the previous year to 169.1 million, due primarily to Brazil’s Arabica trees entering the offyear of the biennial production cycle. With global consumption forecast at a record 167.9 million bags, ending inventories are expected to retreat 2.8 million bags to 33.5 million. World exports are expected down 800,000 bags to 116.8 million as lower exports from Brazil more than offset higher shipments from Indonesia and Vietnam. Coffee prices, as measured by the International Coffee Organization (ICO) monthly composite price index, dropped 15% in the last year to 93.33 in May 2019, the lowest since September 2006.
This chart says it all, and does not require any additional explanation. Readers should compare the current year with the 2020 forecast.
So what we conclude from our first leading indicators is that the global coffee market is moving from a global oversupply to a state of almost a deficit.
This is supportive of higher coffee prices.
Leading Indicator #2: The Brazilian Real
The second leading indicator for the future price of coffee is the Brazilian Real against the US Dollar.
Here as well we look at the direction, not the details. In other words if the Brazilian Real moves in a long term rising channel against the Dollar the price of coffee tends to rise (as the Dollar tends to weaken relative to the Real). However, if the Brazilian Real is in a falling channel against the Dollar it is not supportive for the coffee price.
Last year we explained this dynamic in more detail. In particular it was detailed in a paper by ABN Amro.
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.
When it comes to analysts forecasting the future price of the Brazilian Real for 2020 and beyond we find hardly any prediction. The only article that comes close to a forecast for 2020 is this one here on Bloomberg. It has a bullish bias for the Brazilian Real.
In other words we have to rely on our own charting skills to define a reliable prediction for the Real, and with that for the coffee price.
The Dollar to Brazilian Real long term chart has an extremely interesting setup. For a full year now we see the the Real trading at a pivot point which coincides with resistance which marks a quadruple top.
A topping formation is a process. It can go for a while. In the case of the Dollar against the Real this is a process that is ongoing for 18 months now!
Note that this long term triangle formation is coming to a conclusion now. Chartists tend to call this the apex of the triangle that will push a market to a big move, either higher or lower.
One thing is crystal clear: whatever happens on this chart will be decisive for the future price of coffee.
If, and that’s a big IF, the Dollar declines and starts a new falling trend on below chart it will get a big push from the coming deficit in the global supply demand situation (explained in the first leading indicator section above).
Leading Indicator #3: Coffee’s COT Report
The trend in speculator positions (‘Commitment of Traders’) also has a strong impact on coffee prices.
When we look at the 9 year COT statistics, especially the center pane, we see an abnormal situation. The amount and time that commercials are long is unusual. It has happened before in the past, but not as long and as heavy as in 2018.
The current setup of market participants in the futures market suggests to us that those participants putting pressure on the coffee price is easing. Speculator sentiment regarding the coffee price is improving with those series of lower highs in the last 12 months (center pane) on only marginal lower highs in the coffee price (upper pane).
In sum this leading indicator tends to become supportive for coffee prices in 2020. Add to this a bullish leading indicator #1 (global demand supply picture forecasting a deficit) and we clearly conclude the coffee market has a bullish bias in 2020. Everything will depend on the Brazilian Real: a bullish trend will result in an explosion in the price of coffee considering global supply demand as well as the COT situation.
Coffee Price Charts And Price Targets
Interestingly the long term coffee chart supports all the findings in our 3 leading indicators.
Not only do we see an extremely enticing setup on the long term coffee price but also do we observe this triangle pattern coming to a resolution in 2020.
This giant triangle pattern which will resolve in the 2nd part of 2020, or ultimately in 2021. The million dollar question is in which direction?
The price of coffee is moving to its apex. It max 12 months we will see a breakout or a breakdown. Everything will depend on the Brazilian Real.
The odds favor an upside move. We have seen violent moves to the upside of coffee in the past. The price of coffee tends to move aggressively higher every 2 to 3 years. So it does not happen often but when coffee starts a breakout you want to be in that market.
The critical price points we have identified:
- P1 Bullish above $1.10
- P2 Bearish below $0.95
- P3 Major peak at $2.10
This market is pretty easy to trade in 2020 or 2021. Assuming coffee will break out at a certain point in time (this assumes no bearish breakdown in the near future) we only have to watch $1.10 in coffee spot combined with a Brazilian Real turning bullish against the USD. All other indicators are already supportive of a bullish coffee price in 2020.A Coffee Price Forecast For 2020 And 2021 Click To Tweet
Results of our previous Coffee Price ForecastsThis is an overview of our coffee price forecasts from last year. We published this forecast early in the year. Prices reflect coffee's spot price.
|Year||Our forecast||Highs||Lows||Accuracy of our outlook|
|2019||Mildly bullish, no breakdown||1.13||0.88||Accurate|
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