Back in March of last year, I was emailing back and forth with Noah Namowicz of Cafe Imports. Â Around that time I had the C-market on my mind quite a lot, and was trying to get a beginners understanding of all that influences it.
Back then he brought up a technical analysis tool called the Fibonacci Analysis. Â I’ll be honest – I understand the Fibonacci series much better than this analytical tool. Â It would be pretty easy to join countless others in their obsession with both the Fibonacci series and the Golden Ratio, and its appearance in nature and in aesthetics. Â As much I could go off on a long rant about the Golden Ratio in design, architecture or design aesthetic (as it applies to coffee), I shall skip this for the sake of this blog post. Â Back to trading coffee…
In March 2012 the C price had just fallen below 200, and this seemed contrary to what ought to be happening. Â To quote from Noah’s email: a
That being said, I think the technical traders and technical theory (so just based on trend lines) give a good idea of where coffee is heading, but right now technically this market is broken, there is no technical analysis aside from Fibonacci that is indicating where this is going.Â Fibonacci analysis has this going down to the mid 130s.Â That is a huge fall, so most technical traders are not following that theory right now.Â Obviously there are external environmental factors like weather than can throw a wrench in technical analysis, but it is more often than not correct. (emphasis added)
Even though it was a declining market, back in March last year the mid 130s did indeed seem like a huge fall. Â That is, however, exactly what has happened. Â I checked the C-market a few days ago, to see it sitting at 136.5, so I emailed Noah again. His response:
What this says isâ€¦traders are using technical analysis, and in a year with mild weather swings, that analysis is most likely going to be very accurate to how the commodity is traded.
This is evidenced by the fact that these traders are completely ignoring the rust issue in central America.
Coffee is low now, but once the real shortage of washed milds are felt, the market will begin to trade on fundamentals again I would bet.Â Traders arenâ€™t feeling that washed mild squeeze yet because there is a lot of coffee still on the table from Colombia, Peru, and Brasil, but once that fades out, the market may jump back up.
A jump back up does seem increasingly likely – though if anything I’ve learned that I don’t really want to get involved in gambling on the C-market. Â It once agains feels frustrating to be in an industry where livelihoods are so dependent on something as fickle as this. Â Right now there areÂ strikes in Colombia (not jut in coffee), which are of course tied to the prices farmers receive. Â The market is paying less than the cost of production, and government subsidies aren’t closing the gap fast enough.
In truth I don’t know if this post is meant to discuss the C in general, or the mechanisms that people use to trade on it and their impact on our industry. The only thing I can be sure of is that it is interesting and worth sharing.
- Emails are quoted with kind permission (back)