There is a lot of information out there on the #coffee market and many people in the coffee industry and across the supply chain can find the reports and data confusing or overwhelming.
In this short guide, I’ve put together short summaries of 5 of the most essential reports for coffee people to understand, along with links to short articles that provide more depth on these key #coffeemarket reports and how to interpret them. I’ll also conclude with some thoughts on interpreting the data in aggregate and forecasting price.
The following 5 “Market Essentials Reports” included in a free subscription at the Coffee Trading Academy (sign up here) are discussed below:
A Seasonal Chart is any chart that overalys data over the same annual timeframe, but this article is primarily focused on “Price Seasonals”. Commodity prices tend to follow a distinct seasonal pattern, this article discusses why and how to read the report.
Main Article: Coffee Report Focus #1: Seasonals
The Commitment of Traders Report collates data published by the CFTC into easily understood charts and categories. This Report shows “who” is in the market and how big their positions are. Much of the focus is on the “Speculator” and we explain why this is such an essential part of understanding price action.
3. Open interest
Open Interest (OI) is the number of futures contracts that are currently “open” or active in the futures market. The Open Interest Report shows the daily open interest (both by cover month and in aggregate) for the coffee market. Understanding OI is important for those who trade futures and calendar spreads to understand liquidity, and it also provides some hints as to who is trading and why.
4. GCA Stocks
The Green Coffee Association, Inc (GCA) is the coffee trading association that covers much of the trade in the Western hemisphere. Their Inventory reports are published consistently every month and are considered the definitive volume of Green Coffee stored in the USA. Understanding GCA stocks is an essential part of understanding destination market supply.
5. Cert Stocks
The Intercontinental Exchange (ICE) publishes data daily on the total number of bags certified for delivery against futures as well as those pending certification. These stocks are the actual supply available to the futures market and understanding their make-up and mechanism is key to assessing the connection between the physical and the futures market.
Interpreting the Data and Price Forecasting
My philosophy on interpreting market data for use in price forecasting can be summed up in 4 simple steps:
1. Quantify the Data
2. Put it into Context
3. Look for Patterns
4. Draw Conclusions
My free coffee market essentials are designed to make numbers 1 and 2 easy for you. I take the data and present it in a clear and consistent format so that it’s easy to use on a regular basis.
Experienced traders who have been looking at the data for many years will have a mental library of many patterns that they have observed over the years. They will then be looking at the reports for confirmation or deviation from these patterns. This enables them to draw evidence-based conclusions, and it also helps them to be able to agree or disagree with others’ conclusions.
Price Forecasting is about pattern recognition. The science of price forecasting is looking for correlations between price and other phenomena. The most robust correlation in commodities, is that of supply and demand and price. Therefore this is what makes up the core of my price forecasts for my premium subscribers.
However, there are many influences on price in both the short and long term that distort price as dictated by the fundamentals. My free market reports show many of those data points and aim to put them into useful contexts, but they are not price forecasts in themselves.
One of the most common requests from my free subscribers is for more analysis and price forecasting. This is a service that I do provide, but I only provide it on a regular basis to my premium subscribers. Not only does performing this analysis take a lot of time and expertise, but it is also how I am able to support myself and my family.
If you find my services worthwhile, I invite you to try a free-trial one of our premium memberships as a means of showing your support.
Even if you are already an experienced trader, it is important to compare your view with others to ensure that your opinions are robust. This goes for whether you use my premium reports, or just discuss with colleagues and friends.
If you work in the coffee industry, you might consider one of our Coffee Trader’s courses that we offer every quarter. In these courses we cover essential skills required in the coffee trading industry, and that includes how to analyze, interpret, and act on market data.
There are additional essential reports covering the coffee market not covered here. Including many that we publish at the Coffee Trading Academy, if people find this guide helpful, then we will continue with a sequel that covers even more of the key reports for the coffee market.