The price of coffee is crashing, strongly. Investors will refer to it as the coffee price crash of 2017. How to play it, and what’s next, are the questions top of mind of investors.
First, when it comes to the price of coffee in 2017, we clearly see the coffee price crash of 2017 on the chart, see annotated purple circle. We know that coffee can be volatile, and it has proven that in recent weeks. The price of coffee crashed from $1.35 to $1.16 in a couple of weeks.
Second, and more importantly, as the price of coffee came down, it fell right until its long term support (purple line visible at the bottom of the chart). The question is: what’s next?
Though we do not have a crystal ball we can tell which price levels to watch for future trends. The most important price point is the $1.20 area. The rule of thumb is that the price staying for at least 5 days in a row below $1.20 would have bearish implications, we would even dare to say major bearish implications. However, if the price of coffee recovers, which it started doing today (not visible on this chart), and climbs above $1.20, then the recent coffee price crash would offer a major buying opportunity. In the latter scenario chances are high that coffee would go back to $1.6 later this year.
Third, from a sector perspective, Commodities Are Facing A Huge Breakdown Risk currently. That does not bode well for the sector. We said repeatedly this year that some specific commodities could do well, but they are the exceptions. Stated differently, investing in commodities in 2017 and 2018 should happen carefully and cautiously.
Investors looking for exposure to the price of coffee can look into JO ETF, the largest ETF out there (without taking the risk of investing in futures).
