Coffee Prices: What a Long Strange Trip It's BEAN... OR -- has it?

In late 2020, coffee's fundamental future looked black, no sugar! But then the unthinkable happened...

by Nico Isaac
Updated: March 11, 2022

I have one question for everyone reading this article: Are you addicted to drugs?

Your first instinct may be to laugh at the absurdity of such a question. You might even get a little angry or defensive that I'd have the nerve to make such a suggestion.

But now, what if I told you this: Coffee, the third-most consumed beverage in the world, contains caffeine. And that is the most widely used psychoactive drug on the planet.

Would you like to change your initial answer?!

In fact, the neurologically altering properties of caffeine might make sense for commodity traders, who have watched coffee prices get higher than a kite over the last two years, more than doubling in value to a 10-year peak on February 7, 2022.

The trippy thing is, a strong bull run in coffee was NOT what mainstream analysis called for. Back in September 2020, coffee prices circled the drain of a 12-year low, earning the title of "worst-performing commodity of 2020."

Coffee's fundamental cards were stacked against it:

• A massive supply glut
• A six-year high in production
• Global supply chain disruptions due to Covid, and
• A steep drop-off in consumption due to the shut-down of cafes and tightening of consumer wallets for "luxury" items like specialty beverages.

Wrote The Guardian on September 4, 2020:

"The global coffee market has had a rollercoaster year amid Covid crisis... Coffee sales around the world have fallen, risen and plunged again, hitting producers hard

"The scale of the downturn hitting the coffee industry is reflected in figures from the countries with the biggest markets. The world's biggest cafe market, the US, expects sales at specialist tea and coffee shops fall nearly 11% in 2020 after years of strong growth, according to Euromonitor International.

"In China, now the world's second-biggest market for coffee, sales growth is expected to slump from just over 40% to just 1.6%."

Yet, despite the overwhelmingly bearish factors in coffee's backdrop, our October 2020 Monthly Commodity Junctures recognized a clear, bullish set-up on coffee's price chart. There chief analyst and Commodity Junctures Service editor Jeffrey Kennedy identified the multi-year decline on coffee's price chart as an Elliott wave ending diagonal.

When you see an ending diagonal, it signals one thing and one thing only: exhaustion of the larger trend. This meant the days of coffee's weakness were numbered. In Jeffrey's words:

"Big picture view works the idea that the selloff from the 2014 high is an ending diagonal. The selloff that began earlier this year within this formation is the final wave of this pattern.

"We are close to completion.

"If we were to see the bottom at or near current levels, I would want to see a five-wave move up and beyond the June high. That would be the first hurdle to overcome before we get excited about getting a tradable low in place."

The next chart shows how coffee prices turned up, rallying to a 7-year high into July 2021 before losing steam.

Months of sideways price action followed. Then, on September 29, 2021, in his Daily Commodity Junctures, Jeffrey identified the rangebound performance as an Elliott wave contracting triangle.

For newbies, here is the beginner's guide of the contracting triangle pattern:

Triangles are easy to spot on a chart. They are like neon signs, moving slowly along in a sideways fashion. A triangle can occur only in a position prior to the final move -- usually, as wave 4 of a 5-wave impulse.

Triangles are complex, and they can try your patience. But the wait is worth it, because once complete, triangles are usually followed by a "thrust" -- a sharp, swift, final move in the direction of the previous trend.

So, in his September 29 Daily Commodity Junctures, Jeffrey showed this chart of coffee. The contracting triangle underway required one more leg down, after which, the stage was set for a powerful thrust to new highs:

"Wave patterns in coffee argue for selling to 190.75--188.65. Ideally, the expected wave down will finish a fourth-wave triangle that began in July.

"Thereafter, will look for signs that the larger uptrend is again under way"

From there, coffee heated up in a powerful rally that earned it a very different title than just one year earlier; this time, coffee was named the "best-performing commodity" of 2021 as this December 8 Fortune confirms:

Then, just when there seemed no stopping coffee's uptrend, on February 7 our Daily Commodity Junctures presented this chart. It showed coffee prices finishing an upward wave pattern and near an important high, with the stage set for near-term declines.

And, this is what has followed since.

Not all forecasts work out like these did.

But at the end of the day, this IS your brain on Elliott wave analysis, which is more acutely attune to high-confident set-ups in the world's leading commodities.

And friends do let friends do Elliott!