ICE coffee futures have seen a huge decline from the June 2 - 3 highs to under $1.17 a pound by July 22. I think this market is now getting a bit oversold and should see a more seasonal bullish trend redevelop. I’m looking for an upside breakout in September futures to about the $1.40 - $1.50 range, taking out the contract high above $1.46. To play that breakout, consider an options spread.
I would expect a seasonal bottom in August, and I recommend the140/150 December call spread to take advantage of higher prices as we head into the fall. Your maximum profit potential on this trade is $3,750, not including commission costs, but it’s relatively inexpensive. So, a good way to play this might be to pick up two contracts, and sell one at 4c or better, while holding the other until expiration on November 12, 2009.
Distributors should be looking to buy coffee before a winter spike in demand, and there is talk the Brazilian government may consider buying more coffee to support farmers after announcing plans last week to buy 3 million bags of arabica coffee at set prices that were higher than ICE Futures.
We could see weather factors also disrupt harvest, but it’s still a bit of an unknown. A good deal of rain is expected in the coming weeks and months in Brazil. Too much rain would be a hindrance to the current crop harvest and result in premature flowering of the 2010-2011 crop. Call. me with any questions you have about this particular strategy, or to discuss suitable strategies in any other markets for your particular needs. Ask about our half-off commissions offer.
Phil Streible is a Senior Market Strategist with Lind Plus. He can be reached at (800) 803-8037 or via email at pstreible@lind-waldock.com.
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