Coffee Prices Get 'Robusta' Despite 'Bearish,' Historic Supply Glut... Any Questions?

To some market observers, coffee 's comeback is no surprise -- here's why

by Nico Isaac
Updated: March 09, 2021

Let's talk coffee talk! On February 27, one Forbes article confirmed that coffee was THE hot commodity of winter. That day, coffee futures rallied to their highest level in 3-1/2 years (Robusta prices soared to 13-month highs).

A quick read of the news offers ample reasons to explain why coffee prices have enjoyed such a pronounced pick-me-up. Among those reasons are adverse weather in Brazil and a resurgence in at-home coffee consumption with the shuddering of public cafes due to the pandemic.

At the end of the day, these are nothing more than attempts to explain an uptrend in coffee after the fact. Before the fact, however, coffee prices were said to be weaker than a pot of 3-day old Java.

Let's rewind the clock to last fall. Then, coffee wasn't among the worst-performing agricultural commodity markets; it was THE worst performer thanks to the market's biggest supply glut ever.

Said this August 3, 2020 Wall Street Journal article:

"The coffee market is poised for a glut in supply... Coffee consumption in the marketing year ending in September is likely to fall for the first time since 2011, according to projections by the Agriculture Department.

Added this September 18 Bloomberg story:

"The world is overflowing with coffee beans, sending futures for the arabica variety to the worst weekly slump since 1998. The glut is so bad that warehouses in Brazil, the world's biggest grower and exporter, have never been this full. Trucks in the country's coffee heartland are waiting days to unload cargo collected from a record crop. That combination is threatening to derail any recovery in coffee prices."

And yet, as you now know, said supply glut did not derail the powerful recovery in coffee prices that followed. In fact, with all eyes glued to the bearish supply glut, it would've been easy to miss this opportunity to coffee's upside.

That is, unless you were tuned to our November 16 Daily Commodity Junctures. There, our Commodity Junctures Service editor Jeffrey Kennedy didn't look to supply or demand figures in coffee's backdrop for clues as to the market's future price trend. Jeff looked to the likely bottoming Elliott wave patterns unfolding directly on coffee's price chart.

One such pattern, pictured below, indicated that coffee had established a major low and was set to embark on a powerful uptrend. In Jeffrey's words:

"If we start trading say $125 as we move into December, I will likely adopt a bullish alternate interpretation. We've been looking for a significant low in coffee for some time.

"If this is the case, we're going to see this advance continue much, much higher in the days and weeks ahead. I believe we need to give the benefit of the doubt to the upside."

In the November 24 Daily Commodity Junctures, Jeffrey confirmed that the bullish wave count was now in full force, showing the upside potential to come in this chart:

And this is what followed:

We'd love to say Elliott wave analysis is a fool-proof method for forecasting markets and that every wave count turns out as nicely as this one. We can't do that, because a market-forecasting method that's always right doesn't exist.

Our analysis is, however, objective -- and, as such, an active trader's and long-term investor's best chance at identifying high-confidence setups before they become front-page news.