As featured in the Commodity Trader’s Almanac 2013, [http://amzn.to/T2nCgU] in conjunction with our co-author John Person, [http://www.personsplanet.com/] coffee typically tends to start a seasonal bottoming process before distributors begin buying ahead of anticipated demand in the upcoming cold winter months. This is the time to cover the best seasonal trade short position from May. It is also a time to look for a short term trade opportunity on the long side.
Traders could look to enter a new long position on or about August 16 and hold this position until about September 5. The trade usually ends right around Labor Day, but coffee prices can continue to head higher as illustrated by the yellow shading in the one-year seasonal pattern below. This trade has worked 26 times in the last 39 years, for a success rate of 66.7%. Over the past 11 years the trade has been even better, posting gains eights times or 72.7%. Last year this trade could have been profitable as well had the position been closed out a few days earlier or later than September 5.
Coffee has increased in popularity on an international scale in the last few decades. Most consumption has been from the United States, parts of Europe, and Canada. Many Europeans have switched from tea to coffee and with the introduction in late 2005 of Starbucks coffee in Europe and in Asia; more and more people are consuming “Vente Lattés”. Demand is improving, especially for higher grade and quality coffee. With increasing global consumption habits, if there are threats of supply disruptions or production declines for higher grade coffee, the futures market can be prone to extreme price moves.
