Breaking News
Investing Pro 0
Donate to earthquake relief efforts in Turkey and Syria Donate

Coffee’s Surprise Rally Leaves Traders Guessing on 2020 Outlook

Commodities Dec 24, 2019 09:25AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
Coffee’s Surprise Rally Leaves Traders Guessing on 2020 Outlook
 
C
-0.04%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JPM
-0.48%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
KC
-0.42%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

(Bloomberg) -- Coffee’s stunning rally in late 2019 took many traders and analysts by surprise, creating tension over where prices go from here.

Arabica beans have surged 24% since the end of September, on pace for the best quarterly performance since 2014 and the biggest gain among major commodities in the last three months. The move came after futures in May tumbled to the lowest in 13 years, driving some farmers out of the industry.

Prices recovered after adverse weather threatened production in Brazil, the world’s top grower and exporter. Analysts began predicting the market would shift into a supply deficit, helping to drive the rebound. But the size of the gains were surprising as a measure of volatility surged to the highest in more than four years. That’s lending a cautious tone to the outlook for early 2020.

“The market ran up too much, too fast, and now we’re seeing a healthy pullback,” said Jason Graves, a senior market strategist for RJO Futures in Chicago. “In the short term, high volatility is here to stay.”

Arabica-coffee futures traded in New York are up 23% in 2019. The commodity rose to a peak of $1.4245 a pound on Dec. 17, the highest in two years, but has since fallen back about 12% to close at $1.253 on Monday.

Here’s what traders will be keeping an eye on in 2020:

World Deficit

Brazil’s end-of-season inventories are set to drop to the lowest in data going back to 1962, the U.S. Department of Agriculture estimates.

Rabobank International sees a world supply shortfall of 3.5 million bags in the 2019-2020 season, while Citigroup Inc (NYSE:C). predicts 4.7 million and sees a 2020-2021 deficit of 1.3 million bags. A bag weighs 60 kilograms, or 132 pounds.

Brazil Production

Crop rallies typically bring new supplies. The country’s low interest rates and inflation will probably encourage acreage expansion, said Carlos Alberto Fernandes Santana, director at Empresa Interagricola SA, the local unit for Ecom Trading, one of the world’s largest traders of the commodity.

It’s also still unclear how big next season’s Brazilian harvest will be, with some expectations for a record crop. Rainfall has been excellent, well distributed in most of nation’s producing regions, Regis Ricco Alves, director at RR Consultoria Rural in Alfenas, Minas Gerais, said by message.

Global Demand

Even if prices have peaked in the short term, they may climb by the second half of next year, according to Aakash Doshi, a director for Citigroup in New York who says prices could break above $1.60 in 2021. Tracey Allen, an agricultural commodity strategist for JPMorgan Chase (NYSE:JPM) Co., said that while prices are going to see ups and downs, they could move to $1.59 in the medium term.

Coffee demand continues to see new growth thanks to the popularity of cold drinks, especially in the U.S., the biggest consumer, said Jim Watson, senior market analyst for Rabobank in New York. Trendy cold brews also use more beans than their hot counterparts because it involves a longer process that extracts less caffeine than when made with hot water, spurring bigger raw material use, he said.

Consumer Impact

The recent price surge isn’t likely to hurt demand or company profits, because the spike hasn’t been sustained, Watson said.

Coffee roasters and chains typically lock-in prices ahead of time, and they’re not likely to “feel much of an issue yet,” said BTIG analyst Peter Saleh. That’s good news for consumers who may not see prices go up significantly for some time.

Coffee’s Surprise Rally Leaves Traders Guessing on 2020 Outlook
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Kaippalil Locality
Kaippalil Locality May 15, 2020 3:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
We can expect coffee can go to 113 above in days
Ehab Adam
Ehab Adam Jan 03, 2020 9:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
What you expect for coffee up or down in first quarter?
Bodie Davidson
Bodie Davidson Dec 24, 2019 9:36AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Starbucks pumping the bid to get out of the mammoth contract size it has. Probably Lukin on the buy side.  But no chinaman I've ever known drinks coffee.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email