Spread Edge Capital specializes in seasonal spread trading across a wide variety of commodity markets. A spread trade is the simultaneous purchase and sale of the same commodity with different delivery dates.  SpreadEdge publishes a weekly Newsletter that provides several seasonal spread trade opportunities every week.

Overview

Each week the SpreadEdge Newsletter documents an extensive list of seasonal, technical and fundamental indicators for the various commodity markets.  This article I will focus on Robusta and Arabica Coffee and review % carry yield, the daily charts as of the Thursday close, and relative price and positioning.  Each of these indicators will be reviewed in the following sections.

% Carry Yield

Futures calendar curves vary in shape over time. Some often invert, with front-month contract prices exceeding those of later contracts, resulting in positive carry. Conversely, some curves exhibit contango, leading to a negative carry.  % Carry yield is the one-year calendar curve yield as a percentage of contract notional value.  Markets tend to reverse when they get at or near their highest or lowest levels over the past 52 weeks.

Robusta Coffee was very near its highest carry yield 3 weeks ago but has fallen from 18.4% to 10.8% over this time.  Arabica Coffee peaked at 6.4% last week while recording its high for the past 52 weeks.  KC dropped from 6.4% to 5.9% but is still close to its high.

Technical Analysis

Robusta Coffee broke through the bottom of the upward channel mid last week and has since continued lower 4 of the past 5 days.  Arabica Coffee has been fighting to stay within the channel but broke through the bottom on Thursday.  A close below the channel on Friday will confirm the break-down.

Relative Price and Positioning

Relative Positioning – Oversold versus Overbought on the horizontal axis.  COT current net position compared to the COT data over the past 24 months.
Relative Price - Cheap versus Expensive on the vertical axis.  A comparison of the front month current price compared to the front month price over the past 24 months.  
 

• Robusta Coffee continues to be in the “Expensive and Overbought” quadrant but has moved noticeably “left” over the past couple of weeks.  Arabica Coffee continues to be the most “Expensive and Overbought” market in the ag sector.

To Trade This

I am currently short the Arabica Coffee December, March calendar spread that is finally slightly profitable.  This trade should improve if KC continues to break down.

More Information

Use coupon code “SpreadEdge” and get the Weekly Newsletter and Daily Alerts for $1 for the first month.  For a limited time, you can receive my Futures Training Videos for free with a 3-month, 6-month, or 12-month subscription.

For a FREE eBook about the SpreadEdge seasonal spread strategy.

The SpreadEdge Weekly Newsletter is published every weekend and provides a broad overview of the important seasonal, technical, and fundamental indicators within the Energy, Grains, Meats, Softs, Metals and Currency markets.  In addition, spread trade recommendations and follow-up on open trades is also provided.  For a free copy of the Weekly Newsletter, please send an email to info@SpreadEdgeCapital.com

Darren Carlat

SpreadEdge Capital, LLC

(214) 636-3133

Darren@SpreadEdgeCapital.com

www.SpreadEdgeCapital.com

Disclaimer

SpreadEdge Capital, LLC is registered as a Commodity Trading Advisor with the Commodity Futures Trading Commission and is an NFA member. Past performance is not indicative of future results. Futures trading is not suitable for all investors, The risk associated with futures trading is substantial. Only risk capital should be used for these investments because you can lose more than your original investment. This is not a solicitation.