Over-reaction to Brazil drought and possible el nino on the horizon.
– We believe that the Arabica coffee futures price has over-reacted to the drought in Brazil….
ETF Securities Research
– Coffee stocks are currently at a three-year high. The hoarding of coffee stock by farmers during the period in which prices hit a seven-year low (prior to the drought) should abate. Increased sales at current levels will place downward pressure on prices.
– A potential El Nino weather pattern to start in this summer will likely be positive for coffee production and price negative.
– With speculative net longs in Arabica coffee futures over 1sd above its 5-year mean, investors trimming long positions could be a catalyst for further price correction.