Financial markets have been optimistic over the last few days. Numerous stock indexes around the globe have recently gained in value. Investors keep monitoring the situation in Europe, including the Greek debt talks. The Fed Reserve’s decision to maintain low interest rates until 2014 also reassures the markets.
The situation in commodity market is complicated. First of all, it is true of coffee, cocoa, natural gas, silver, copper and platinum.
Coffee Market: Major Factors
The global consumption of coffee is constantly growing, both in exporting and importing countries.
The most popular kind of coffee is Arabica. It accounts for 70% of the entire coffee market. The world’s major importers of coffee are the USA and European countries. Meanwhile, the demand for coffee is growing in India and China due to higher living standards. The pace of coffee consumption growth in Brazil remains 1.5-2% higher than the world average. Brazil may soon become the world’s number one in terms of coffee consumption.
In the meantime, Brazil remains the world’s leader in terms of coffee production (over 48% of the global production). Therefore, it has a major influence on the global market. The 2nd place is shared by Colombia and Ethiopia. Last year Colombia won the race. But this year, according to ICO, Ethiopia’s more abundant harvest will allow it to outpace Columbia. Other major producers are Honduras, Peru, Vietnam, Indonesia, Guatemala, Nicaragua etc. African countries may also join the company of major coffee producers within a couple of years if their governments make efficient and weighted decisions concerning the industry.
Here is the list of major factors influencing the pricing in the global market of coffee:
• Production
• Demand
• Reserves
• Currency fluctuations
• Speculative factors
• Weather conditions
• Seasonality factors
Market Outlook 2011
According to Eugene Olkhovsky, ’s leading expert in financial markets, the year of 2011 was bullish for coffee:
In winter the Arabica price in New York more than doubled, thus overcoming the 14-year high on higher global consumption and lower reserves.
Brazil gathered poor harvests, which caused deficit. It is interesting that when the prices are high the global sales volume can remain low because the producers are waiting for even higher prices.
Market Forecast 2012
Here are some popular forecasts for the near future of the global coffee market:
The USDA expects the global production of coffee to shrink a bit but to exceed the global consumption - 135M bushels (1 bushel = 60kg).
The ICO expects the consumption of coffee to exceed the production mainly on last year’s production decline because of unfavorable weather conditions in Brazil. «Ted Lingle», the cofounder of «Coffee Quality Institute in Long Beach», assumes that farmers will need 2 more years to increase the production.
REUTERS anticipates a deficit in the global market of coffee. In long-term perspective, it will lead to higher prices, especially on Arabica. Most experts assume the prices will increase by 4% on average . They say the market will see some supply problems until May 2012, which will support the prices. In May Brazil will start its harvesting campaign. CONAB expects a record harvest (+13-20%). Consequently, Brazil’s production has all chances to increase in the 2012-2013 marketing year.
In mid-term perspective, the market of coffee may retrace on numerous factors, including, poor macroeconomic stats, currency fluctuations, speculation, re-exports, weather and seasonality. According to the analytic service of «CHEMICO LIMITED», in mid-term perspective, Arabica may depreciate by 8%. However, the retail prices may stay relatively unaffected because numerous coffee houses such as «Starbucks» have already accumulated abundant reserves of coffee.
Some experts are bullish. They say it is time for coffee retailers to buy because in spring the prices will grow.
According to the Department of Commodity Trading of , hedge fund bet on commodities, expecting them to rally amid optimism, higher global demand and US economic growth.
According to the US Commodity Futures Trading Commission, at the very beginning of 2012 the amount of contracts increased by 18 futures and options (+25%).
In mid-term perspective, coffee is likely to depreciate on seasonality and production cycles, which suggests lower demand. The seasonal demand reached the climax in January. Moreover, this year most major exporters anticipate more abundant harvests. It suggests extra pressure on global coffee prices.
Market Leader and would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
What awaits the global coffee market in the near future?
