Both Coffee And Sugar Futures Are Trading At Their Lowest Prices In A Decade

It would be an understatement to say the coffee and sugar markets have seen better days.

At $95, coffee futures have reached their lowest point since December 2005. And sugar has fared worse, falling to the $10 handle for the first time since March 2000. You can see the historical downtrends in the charts below.

Sugar Futures

Chart courtesy of Investing.com

Coffee Futures

Chart courtesy of Investing.com

So, what’s behind the weakness in these softs? For coffee, it’s one word: Brazil.

The Brazilian real has gotten crushed of late, as concerns about the country’s upcoming Presidential election has caused the currency to fall to record lows against the U.S. dollar. As of this writing the real has fallen about 21 percent in 2018, and it will likely continue to be volatile until the election on October 7.

This collapse puts the global coffee markets in a bit of a precarious situation, as Brazil is the world’s largest exporter of beans. To make matters worse, the harvest is shaping up to be one of record production. As RJO Futures Senior Market Strategist Adam Tuiaana noted at the end of August, it’s hard to maintain anything other than a bearish view right now.

“On the technical side, coffee struggles to hold support at 105, and reached sub 100 levels this past week,” he said. “We’re now seeing a short-covering rally, but expect some solid resistance at the 105 area now. For now, we’ll continue to hold a bearish outlook but hold off on new positions until we see a rally back to approximately 10550. Consider using put options to manage risk effectively.”

When it comes to the weakness in sugar, the global weakness can also be traced back to a supply glut. Both India and Thailand are having record production years, which the United Nations’ Food and Agriculture Organization has said will lead to the largest supply surplus in history.

Even from a short-term technical trading standpoint, the commodity looks unlikely to turn around despite a bullish uptrend in the first part of September.

According to a note from RJO Futures, “The technical and especially fundamental forces that drove this market down for TWO YEARS aren't likely to evaporate quickly and allow the market to sustain a new bull trend right out of the shoot.”

RJO Futures is a content partner of Benzinga