June 2 (Bloomberg) -- Coffee traders should cut bullish bets as prices may drop 13 percent in a month, said Jim Stellakis, an independent analyst, citing a study of seasonal patterns.
For three out of every four years going back to 1973, futures fell between May 31 and July 15, during South American harvests and as consumption of the hot beverage drops in the Northern Hemisphere, said Stellakis, the founder of Technical Alpha, a New York-based research firm. The average loss was 14 percent. “June is the worst, although weakness continues in July,” he said.
“It’s like betting in blackjack -- there are times when you’re supposed to raise your stake; this isn’t one,” Stellakis, a former strategist at Touradji Capital Management, said yesterday in a telephone interview. “The odds are just not with you.”
Arabica coffee for July delivery rose 2.3 cents, or 1.7 percent, to $1.3655 a pound yesterday on ICE Futures U.S. in New York. Coffee has declined 8.7 percent since reaching a 15-month high of $1.495 on Dec. 16, partly on forecasts for a bumper crop in Brazil, the world’s largest producer.
Barring any natural disasters in Brazil, futures may fall as low as $1.19 by the end of June, Stellakis said. A close below that level may lead to a drop to $1.15 by mid-July, a support level indicated by a rising trendline connecting the lows in the past six years, he said.
Stellakis advised that investors “be very disciplined and sell any breaks” below $1.303. Those who want to bet on frost damage should “play with options” to control risks, he said.
To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.
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