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Coffee price analysis: The price ride

From the September 2011 issue.

While coffee prices seem to be on a downward trend, market fundamentals are staying strong. Commodities analysts predict where price movements will lead to next.

A bull at heart, but a bear on the chart,” is how Macquarie’s Commodities Research Division captured recent sentiment towards the Arabica coffee market.

The report is referring to the recent downward curve in the price of coffee – and that a quick assessment of the market may lead one to believe that downward trend will continue. Since Arabica Futures reached record highs at over US$3 a pound in May, roasters have welcomed seeing prices slowly settle down, closing at around US$2.85 at the end of August. Speculators, who have enjoyed the ride up since around June 2010 when they moved to a net long buying position, are starting to pull out, with recent data from the US Commodity Futures Trading Commission (CFTC) showing them adding to their net short position over the last few months.

With prices on a downward movement, the question now arises as to how far they will drop. As Macquarie’s quote implies, however, there is more to these price movements than meets the eye, and that it may be too early to turn to bearish sentiment just yet.

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