Coffee: Has as Fundamentals to Follow-Through to Upside; 240.45 next
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Following Friday's reversal, coffee prices have put together 3 positive daily results in a row and are more than 12.00 cents above their January and March lows. While it may face pressure from sluggish global risk sentiment, coffee's bullish supply outlook can help the market maintain upside momentum. A bullish supply outlook for Brazil and Colombia has underpinned coffee prices, as both nations could have weather issues from the current La Nina event. A rebound in the Brazilian currency also boosted coffee prices and helped to trigger an upside breakout. Brazil's upcoming 2022/23 "on-year" crop should come above this season's production total, but drier than normal conditions since mid-2020 and last July's frost events could see Brazil have their second smallest Arabica crop over the past 9 "on-year" seasons.
In contrast, heavier than normal rainfall could disrupt harvesting of Colombia's Arabica production during the first half of this year. ICE exchange coffee stocks rose by 8,859 bags on Tuesday as they climbed back above the 1 million bag level with a fifth daily increase over the past 7 sessions. Keep in mind that ICE exchange coffee stocks are more than 539,000 bags below their 2021 year-end total and more than 1.088 million bags below their September 2021 month-end total.
MARKET IDEAS
With Brazil and Colombia continuing to see production issues, coffee prices should remain well supported. Near-term buying support for May coffee is at 230.00 and 228.20, with next resistance at 240.45 and 245.15.