Demand Crashed, But This Commodity Soared Anyway. Any Questions?

PLUS! Why the time to confirm coffee's "firm upward trend" was in June... of 2020!

by Nico Isaac
Updated: June 08, 2021

Pour yourself a cup of Joe and check this out: On May 28, coffee prices rallied to their highest level since 2017, after clocking a 70% gain over the last year. And, according to the International Coffee Organization's (ICO) composite indicator, it's officially time to call the coffee kettle bullllack. Said one June 7, 2021 Industry report:

"A firm upward trend of coffee prices over the first eight months of coffee year 2020/21 seems to confirm a net recovery from the low price levels that began in coffee year 2017/18."

This particular ICO indicator considers "market fundamentals" such as production, global demand trends and supply and uses those factors to gauge future price moves. However, in this case, all it did was confirm an "upward trend" in coffee prices -- after a year-long, and 70%-strong gain.

But was there a way to have anticipated coffee's uptrend before it became obvious?

YES! Here, we go back to last spring and summer, to May and June of 2020. Then, coffee was the worst-performing global commodity. Coffee had many strikes against it, such as: a massive supply glut, 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.

One May 3, 2020 BBC News interviewed those struggling on the commodities "ground" floor:

"Coronavirus Coffee Farmer: 'We're definitely scared. We don't know how things will progress... We will keep producing coffee but where are we going to sell it? That's the difficult question."

From there, the consensus about coffee's future only got more bearish:

"The weakening demand and recession environment should put a lid on price upside." (June 29, 2020, Bloomberg)

Yet, from an Elliott wave perspective, the coffee industry was about to get a major pick-me up. Here, in the June 2020 Monthly Commodity Junctures, chief analyst Jeffrey Kennedy identified a bullish wave pattern on coffee's long-term price chart: an ending diagonal, pictured here as an idealized drawing and then in real-time on Jeffrey's price chart of coffee.

When you see an ending diagonal, it signals one thing and one thing only: exhaustion of the larger trend.

In this case, that meant the days of coffee's multi-year decline 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."

From there, coffee embarked on a three-month long rally to 2-year highs before reversing sharply lower into November of 2020. Then, in the November Monthly Commodity Junctures, Jeffrey said the "wait" for the culmination of the ending diagonal and resulting advance was over.

And, once again, coffee's uptrend resumed, as seen on this long-term chart of the commodity:

In the end, there's no way to know what other supply or demand disruptions may lie ahead for the coffee market. There is, however, a way to identify the most formidable patterns of investor psychology underway on coffee's price chart -- right now -- and what it means for the likely future of this major commodity player. And that way is our Commodity Junctures Service.

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