Colombians Coffee Farmers vs “El Nino” & “Roya Leaf Rust”.
This article is originally referred from IFC Markets Technical Analysis.
Coffee has been declining since mid-July. After dry weather caused by El Nino Colombian farmers are concerned about coffee crop damage from overly humid weather due to La Nina. Will the coffee continue declining?
Colombian farmers are concerned the roya leaf rust, a fungus that attacks coffee trees and prevents them from producing beans, may cause a heavy damage to coffee harvest. Colombia is the world’s third top producer of coffee. Colombian coffee plantations suffered from severe El Nino drought earlier this year, and now meteorologists are already issuing warnings that the La Nina phenomenon could begin as soon as this month.
The cooling of waters in the Pacific Ocean, known as La Nina, cause heavy rains which spread the roya leaf rust with them. Colombia’s federation of growers has warned farmers that La Nina may bring high humidity and a lack of sunlight, estimating production of 14.5 million 60-kg bags during 2016. For the first eight months of the 2015/16 season, which began on October 1 last year, global coffee exports were up 1.6% at 75.95 million bags. Farmers in Kenya, which is not a major producer of coffee but produces the arabica variety of coffee beans used in specialty drinks such as those made by Starbucks Corporation, are also concerned about the effect of unseasonably cold weather on the next year’s early crop.
The prevailing cold weather in Kenya may curb the flowering of coffee trees which need a month of dry-weather conditions before the start of flowering in October. The cold weather, which began in June, normally abates by this time and if cold weather and rains persist, it may affect the coffee crop. Nevertheless, the East African nation is expected to produce 45000 metric tons of coffee in the 12 months through September, compared with 38000 tons a year earlier. Lower crops in Colombia and Kenya will be bullish for coffee prices.
COFFEE:D1 has been declining the last four weeks having advanced 11% since the start of 2016. The Parabolic indicator shows continuation of downtrend. The Donchian channel has a zero slope. The RSI oscillator has been falling, indicating a downward price movement. The MACD indicator is below the signal line and the gap is falling, which is a bearish signal. We expect the downward movement will continue after the price breaches the lower Donchian channel and last fractal low at 139.34. A pending order to sell can be placed below that level.
The stop loss can be placed above the bound of the range at 146.97. After placing the order, the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop loss level (146.97) without reaching the order (139.34), we recommend cancelling the position: the market sustains internal changes which were not taken into account
|Sell stop||below 139.34|
|Stop loss||above 146.97|
Original Source: IFC Markets Technical Analysis