Well, Tuesday’s move in coffee futures was puzzling.  As a general rule, markets ought to react to bullish news by moving higher, and react to bearish news by going lower.  If a market reacts to bullish news with a move lower, it’s typically a sign of severe weakness, and possibly unkown fundamental factors overriding known factors.  With todays clearly bullish coffee report from the ICO, coffee futures mockingly closed $0.35 lower on the day.  Why?  Your guess is as good as mine.

The International Coffee Organization revised its estimate for global coffee output downward from 133.4 to 127. 8 million bags, due to smaller crops out of Columbia, Vietnam, and india.  This is big news, and in light of the coming deficit season, futures prices should have had no trouble holding ground Tuesday.  Is this cause for short term concern?  Definately.  If you’re long this market, as I am, place your stop losses or hedge with puts.  This market is fundamentally primed for a bull move that will blow the top off of previous historical bull runs, but in the short term people are crapping their financial pants.

There is still that lurking concern of consumption curtailing along with every other commodity out there.  But as of yet, the contrary seems to be true.  Fear and stress tends to augment coffee consumption, not reduce it.  And it really has achieved diet staple status, where people don’t perceive it as a luxury so much as a daily essential.  And the transition from coffee house use to in home consumption should prove to increase over all consumption, as in home brewing is not nearly as efficient as commercial coffee brewing, allowing larger portions of coffee to flow down the drain.  Conclusion is still that this market is gripped by fear, but as soon as fundamental factors manifest in actual arabica shortages coffee futures prices should respond swiftly and dramatically to the upside.