Shorting Coffee (KCK21)

Coffee has started to look similar to the sugar chart on May sugar we shorted yesterday. We received a swing high last Friday, for similar reasons I was skeptical about this short trade, the price continued up despite this time of year typically not being good for coffee prices. As we are seeing in many commodity markets, rising bond yields are influencing overvalued commodities and bring price back down. Today coffee broke below the 10 DMA and opened with a gap down.

Moore's has a coffee short that it recommended on February 22nd that has been profitable 13 of the last 15 years. This is because Brazil, the world's largest coffee producer, begins harvest in May/June.  Prices normally decline through April and into late May in anticipation of new supply hitting the market.

Coffee sentiment is at extremes which correlates well with price corrections as you can see from the 10 year coffee chart below. 

We will look to enter coffee at it's current trade price at 134.5. Price should revert to the trendline near the .618 retracement at 127.5. This drop in price would be worth $2,625. We will place stops above the Friday close at 138 risking $$1,317. Coffee margins are currently $4455 on RJObrien. We will be trading the May contract.