This year’s weather conditions don’t favor agrarians and investors. While some regions of the planet are suffering from continued heavy rains other regions are in danger because of severe droughts. Apart from wheat, sugarcane, soybeans and other crops, coffee is another major food commodity that is in jeopardy due to unfavorable weather.
In this article, we will try to take a look at the near-term prospects of the global coffee market.
Weather Affects Coffee Market
According to the experts of Lionstone Investment Services, the coffee market is seeing major changes due to unfavorable weather conditions in major coffee-growing regions.
Brazil, Vietnam and Indonesia, the world’s major suppliers of coffee, are suffering from the heaviest rains and the severest droughts seen over the last couple of decades.
The harvesting campaign in Brazil is only 40% completed because of the rains. Apart from the threat to the quality of the coffee harvest, the rains caused the premature blossoming of the next harvest (season 2012-2013). Therefore, the overall harvest may be even poorer than expected.
Despite major export problems in Colombia, Salvador and Nicaragua, other exporters of Arabica are currently trying to make up for the deficit of this premium kind of coffee.
As for Robusta, Vietnam supplied a million bushels more than last year. The supply is excessive.
Poor harvests are the major reason for the recent price hikes. The new record is $3 per pound. The price has exceeded the all-time high for the first time in 34 years. Another factor is much higher demand for the premium-quality “Arabica’ coffee in China, India, Indonesia and Brazil. As a result, the price have nearly doubled since early 2012.
Consequently, retailers are expected to boost the price on Arabica. The price hike may reach 30% and more. At this point, the coffee futures have already appreciated by more than 24%.
There are rumors that rains will reduce the quality of the current Arabica harvest. Obviously, these rumors are pushing up the prices as well.
Moreover, the global reserves of coffee beans are expected to run lower this year. This will be another major driver for coffee prices. According to the ICO, the global reserves are expected to decline down to the lowest level since 1960.
Weather – Major Market Driver
Obviously, weather will remain the main market driver in the coffee market. Coffee prices will suspend their rally only if the heavy rains in Brazil and Colombia stop for some time. On the contrary, India needs more rain or the production of coffee will be reduced this year.
According to the Commodity Trading Department of Masterforex-V Academy, the price of coffee is still fluctuating within the range between $ 177 and $190 per bushel. The USDA report was bearish for coffee. However, heavy rains and droughts changed to overall picture, thus initiating a price rally.
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