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Coffee Prices: Lightning DOES Strike Twice
What helped EWI's Futures Junctures Service to stay a step ahead of coffee's biggest moves?
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By Nico Isaac
Thu, 30 Jun 2011 15:30:00 ET |
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This time last year, coffee prices were about as hot as Anthony Wiener’s now defunct political career. In June 2010, the market was scraping the bottom near $1.30/pound. AND, according to the mainstream experts, a very bearish supply picture should have kept coffee's cards stacked against it. Here, the following headlines from May-June 2010 say plenty (emphasis added):
- "Coffee falls as investors expect Brazil's harvest to be plentiful, which would increase the supply of the crop." (Business Times)
- "Coffee prices lower as Brazilian output to rise 23%, USDA unit says." (Associated Press)
- "Global coffee production will rise 11% to an all-time record in the year starting July 1. With the upcoming harvest, producers will be selling heavily at these prices and look to hedge. The market is overbought." (Bloomberg)
YET, rather than sell coffee due to a surplus -- as the logic of the "fundamentals" was suggesting -- market goers began to buy up coffee like it was going out of style. From its June 2010 bottom, coffee prices rocketed 78% to a 30-year high.
Now, while fundamentals actually blurred the upward potential in coffee prices, the internal Elliott wave structure alongside a powerful historical parallel brought said potential into sharp focus. In the June 2010 Monthly Futures Junctures, long-time editor and EWI's chief commodity analyst Jeffrey Kennedy presented a comprehensive 5-page, 7-chart "Featured Market" report on the bullish prospects in coffee's future. There, Jeffrey reinforced his outlook with the following analog of two nearly identical periods in coffee's history and wrote:
"The top chart from the April 1993 low to the December 2001 low is an [inverted] mirror image of the price action in the lower chart that transpired between the April 1977 peak and the January 1986 peak. Now here comes the exciting part and leap of faith. From the January 1989 peak, a low formed at 57.00 in June 1993 [A Fibonacci 89 months later] that introduced a more than 360% price move. If lightening strikes twice, then another volatile price move might be in the making since the May 2009 low is 89 months away from the December 2001 bottom. If the patterns and analog reviewed in this months issue of Monthly Futures Junctures do indeed repeat, then coffee's price could easily double from the current levels." (June 2010 Monthly Futures Junctures)
Lightning did indeed strike twice with coffee prices more than doubling from their June 2010 low. The big question is -- now that a major historical parallel has occurred, what is coffee's long-term future?