It’s been too long now since I’ve posted on coffee futures. Coffee news is exceedingly bullish, but this is quite typical for this time of year. That said, there may very well be something different this time around. We’re going into next season with the lowest stocks to usage ration on record, and all major producers are reporting smaller 2010 harvests.

Coffee futures have been range bound to drifting lower since mid October, but have gained over 15 cents in the last two weeks to challenge the highs set in October. Coffee has a lot going for it fundamentally speaking, but what’s more important is coffee’s seasonal tendency to rise in December, and to maintain an upward bias until March. If coffee is going to make a run this year, we are in that perfect time frame for it.

The decline from October into mid to late November is also consistent with coffee seasonality, and although this may have seemed like weakness in the market, it was probably more of a constructive shake out of weak longs and the last major buying opportunity for commercials. From a longer term perspective, it should be obvious that coffee futures are making higher highs and higher lows, the very definition of a bull trend. This should, until prices prove otherwise, leave the long term investor with a ‘buy the dips’ mentality.

At today’s prices, which are nearing the highs of the year, the short term investor should watch very carefully for further advances. Breaching previous highs at this time of year will leave the 2008 highs in the 170s as the only ceiling for prices in the last 10 years. The best way to trade this market after today’s jump in prices is to set buy stops above 150 which stop you into a long position should coffee futures advance. Because prices have been range bound, a breakout should lead to a new consolidation zone at higher prices which leave the current range safely behind, while providing a low risk entry point.

Sugar and Cocoa futures have both had their fun this year, and now I believe its coffee’s turn. Not to mention that cocoa and sugar are at levels that may be tough to sustain from a fundamental perspective, and when investors start to pull out their cash and take profits, it should drift into the only other soft commodity with bullish fundamentals, coffee. If those two commodities could rally as they did this year with a more subtle bullish case, then coffee should be primed to experience a mark up that parallels them both, doubling prices and taking them into the $2.50 to $3.00 range, for starters.

Timing this market is, has been, and always will be a bitch. But someone with deep pockets and a bit of patience is going to get paid within the next year from this market. If one doesn’t have experience trading, I’d highly recommend buying coffee ETF’s. ETF’s lack the leverage of futures, which both reduces profit potential and reduces risk, but they do allow one to stay the course and see this market do what its been preparing to do for the last 10 years.

For those looking to time this market, you have a window of safety in to March. Option sellers will have a field day selling puts into this market. And coffee futures traders should be able to trade the trend, and stay long the market with stops below the 20 day moving average. Should this market really run away, stops should be raised to follow prices a little more closely, for when coffee shits, its shits like an elephant.