BMI Coffee Market Comment

June 20th

“Now that prices have broken though key support around USc253/lb, we feel that both technical and fundamental factors are pointing towards lower prices in the coming weeks.

In terms of fundamental factors, the 2011/12 harvest in Brazil (which runs from May to August) is well underway and this will boost global coffee supply in the coming weeks. Combined with an improvement (albeit modest) in Colombian coffee production in recent months, this has seen coffee stocks at the US Intercontinental Exchange (ICE) reverse their multi-year downtrend.

From a technical perspective, we have been highlighting that weekly momentum indicators were turning negative, with a bearish divergence on the weekly RSI and a bearish crossover on the MACD. More recently, front-month (July) coffee has broken below multi-month support around USc253/lb and in so doing, breached neckline support of a head-and-shoulders reversal pattern. A weekly close below the current level of USc250/lb would see us target additional downside towards the USc200/lb level over the coming weeks.”

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