Why KC is Greater Than OJ This Holiday Weekend

• Heading into the US July 4 holiday weekend, I've mentioned the historic debate between John Adams and John Dickinson. 

• As for markets, coffee (KC) moved into the spotlight during June, followed closely by orange juice (OJ).

• Brazil is the leading producer and exporter of both commodities. 

I’ve been asked about my recent comments regarding John Dickinson. Recall Mr. Dickinson was an American Founding Father from Pennsylvania. As a member of both the First and Second Continental Congress, he hotly debated with Massachusetts delegate John Adams on the topic of independence from Great Britain and the King. In the end, he did what was best for his country and abstained from the vote on the Declaration of Independence and refused to sign the document. Yet he was also one of the first Founding Fathers to serve in the Revolutionary War as a militia officer. As for Mr. Adams, we all know he would later become the first Vice President of the United States, a job he described as, “My country in its wisdom contrived for me the most insignificant office that ever the invention of man contrived or imagination conceived”. As for his view on “Kings”, Mr. Adams “deeply feared unchecked power and believed kings (and others) were all susceptible to corruption”. Think about where the United States is 250 years later. What does any of this have to do with markets? Use this equation: KC > OJ. 

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King corn is going nowhere fast, while crude oil has been dropping of late and gold seems to have found at least a short-term updraft^[i]. However, if long-term investors are looking for a market to potentially move some money into, coffee (KC) could warrant some consideration. Last week (ending Thursday, July 2, 2026) saw the September futures contract (KCU26) rally as much as 78.0 cents (per pound) off its recent low, or roughly 33%, in only 3 weeks’ time. Meanwhile, the futures market’s inverted forward curve continued to strengthen telling us long-term supplies were tightening in relation to demand, also an invitation to new buying interest.

Charles dickens wrote, in A Tale of Two Cities, “It was the best of times, it was the worst of times.” Much of the reason for the spike rally in coffee futures, as one would expect given the market is a weather derivative, has been due to adverse weather. As I mentioned earlier in the week, when I was first asked about the explosive move in coffee my Blink reaction^[ii] was key growing areas of Brazil – the leading producer and exporter of coffee in the world – had turned hot and dry. But I was wrong, for it was too much rain that was creating increased concern over production and supplies. 

Is there an opportunity for long-term investors to use the move in coffee to their advantage? Certainly. The previous CFTC Commitments of Traders report (legacy, futures only) for the week ending Tuesday, June 23^[iii], showed noncommercial interests (Watson, funds, investment traders, etc.) holding a net-long futures position of 15,053 contracts, an increase of 5,847 contracts from the previous week. This included an increase in long futures of 3,876 contracts and a decrease in short futures by 1,971 contracts. As I say in these cases, this is a more bullish change given it was driven by new buying interest. 

Greater things could be seen in the market over the coming weeks and months. The noncommercial positioning week just passed, from Tuesday, June 23 through Tuesday, June 30, saw the September futures contract close 20.5 cents higher, telling us funds were continuing to add to their net-long futures position. The previous Tuesday-to-Tuesday positioning week (June 16 to June 23) saw September gain 3.15 cents. At the same time, the latest positioning week saw the September-December futures spread moved from an inverse of 14.0 cents to 14.35 cents meaning most of the support came from the noncommercial side. 

Than what we see, the buying in coffee is stronger than what is happening in the three kings of commodities: corn, crude oil, and gold. Does this tell us the concern over intentionally created global chaos is calming, giving way to a return to what we’ve known in the past: ag production markets (including coffee) are weather derivatives. If so, then this would be an important evolutionary step, indicating Watson (trading algorithms) has moved beyond simple not necessarily the Truth Social media posts and manufactured headlines. Or maybe I’m reading too much into this move by coffee given weather headlines are just as easily manipulated. 

Orange juice futures (OJ) have also seen an uptick in price recently. The September contract (OJU26) posted a high of $1.74 (per pound) last week, a gain of 34.45 cents (25%) from the previous week’s low of $1.3955. However, I question the market’s staying power given its lack of commercial support. The orange juice futures forward curve is showing a carry, rather than an inverse like coffee, from the September issue to at least the January 2027 contract meaning there is little to no concern over 2026-2027 production. It should be noted Brazil is again the undisputed world leader in production and exports. 

Julius Ceasar provided the name for this month, the second month of the 3-month summer season in the Northern Hemisphere meaning, conversely, the second month of the winter season south of the equator. It’s important to remember that Brazil’s coffee harvest season runs from May to September, reportedly producing “roughly 35%-40% of the world’s coffee”. As for orange juice, Brazil’s harvest tends to start in July and last through December, producing “approximately half of the world’s orange juice and supplying up to 75% of the juice marketed internationally”. We’ll know more about both markets’ fundamentals as July plays out.

KC > OJ 
 

^[i] I shared my latest thoughts on gold with Kitco News for this week’s poll. 

^[ii] Based on the Malcolm Gladwell book “Blink”, the theme being our first thought is usually correct before we spend time convincing ourselves otherwise. 

^[iii] The release of the report for the week ending Tuesday, June 30 was delayed until Monday, July 6 due to the US holiday on Friday, July 3.