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Coffee Looks Past The Coronavirus

Mar. 06, 2020 4:25 PM ETJO5 Comments
Clif Droke profile picture
Clif Droke


  • Excess rain in Brazil is further reducing global coffee inventories.
  • Vietnamese farmers are holding onto beans, keeping supplies tight.
  • Weakening U.S. dollar will also help bolster coffee prices.

One of the few commodities to escape virtually unscathed from the coronavirus panic is coffee. Coffee prices have risen sharply in recent weeks, thanks largely to tightening supplies and short covering. In this report, we’ll review the key fundamental factors which point to coffee’s longer-term bull market remaining intact in the months ahead.

Since bottoming in early February, coffee futures prices on the ICE have risen by some 24%. This is in utter contrast to recent performances for other soft commodities in recent weeks, including sugar (down 13%), cocoa (down 10%) and cotton (down 14%). Of course, the biggest underperformer among major commodities since the coronavirus panic began in January has been crude oil (down 31%), which has weighed heavily on the broad natural resources market.

Yet despite the ill effects the virus has had on other markets, coffee prices have perked up in the face of diminished supplies. Excess rain in top producer Brazil has boosted prices for the widely-used arabica beans, allowing coffee to take first place among the world’s major commodities. The excess rain has caused fungal problems for coffee plants, resulting in less fruit from which to harvest beans.

Coffee Continuous Contract

Source: BigCharts

What’s more, bean supplies are also lower globally, which is further serving to fuel the coffee price rally. According to a Bloomberg News report (via Yahoo Finance):

Arabica stockpiles held in port warehouses monitored by the ICE Futures U.S. exchange fell by 2,200 bags on Monday. Inventories held by Brazilian farmers are also low, while producers in Colombia and Honduras practically sold out after locking in prices in a late-2019 rally.

The weather-related, supply-induced shock in the global coffee market has also resulted in a substantial increase in volatility, however, as reflected in the following graph. It shows that 60-day volatility is at a multi-year high as the coffee

This article was written by

Clif Droke profile picture
Clif Droke is an equity research analyst and writer for Cabot Wealth Network. He has covered equities and commodities, specializing in gold, since 1997 and is the editor of the Cabot SX Gold & Metals Advisor.

Analyst’s Disclosure: I am/we are long JO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)

rexarus profile picture
Smart article. I agree with your premises. The Real could easily reverse course soon, especially if FOMC takes rates U.S. rates down again at next week's meeting. Coffee is a loaded double barreled shotgun.
Mark Krieger profile picture
should see $1.50 per lb. by the end of Spring.
imo, the accelerating decline of the real vis a vis the dollar u.s. is the culprit and it could get worse..
see also arg. peso to the south.
it's about the currency not the coffee so far..
D Lombardo profile picture
Thanks for the article
I wonder why it retraced its gains this week.
JO lost over 4% on Friday; I do not understand.🤔
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