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Coffee prices have reached a 10-year high, and analysts expect the market to remain tight until 2023.
Coffee contracts for December delivery ended Monday’s trading session at $2.34 a pound. On Thursday, coffee futures on the New York Intercontinental Exchange reached $2.46, marking the highest price since 2011, when the commodity topped $3 a pound.
Meanwhile, the ICA’s record price was $2.07 a pound on Friday, up 85% from the previous year.
Ole Hansen, head of commodity strategy at Saxo Bank, told CNBC that over the past 12 months, “a perfect storm of events has taken place.” [has been] conspiring to give our beloved Volna a boost.”
“The question for future price movements is how much longer these developments can be,” he said in a phone call. “I think we need to focus on what’s happening in Brazil this year, where we’ve seen temperatures drop across generations, very fast frosts hitting some developing regions, and we’ve had a drought – that left the 2022 crop in a bit precarious.”
These adverse weather events will affect the crop later this year, as well as in 2022 and possibly even 2023, Hansen added.
“We saw coffee rise to about $3 a pound in 2011, when we had another panic from Brazil,” he said. “These are really the kind of numbers that lead the market to speculate whether we can reach these levels again, and I think with Brazil in mind, and if the forecasts over the coming months continue to confirm a slowdown or decline in production, then the risk of an increase in the cost of our drink is real. Extremely “.
Besides bad weather, global supply restrictions have had a major impact on the coffee market because producers and roasters – the companies that refine coffee and turn it into the product we drink – are often located in different countries. Market uncertainty also stems from exporting countries such as Ethiopia, which is on the brink of civil warand Vietnam, which is seeing a rise in Covid-19 cases that could hit production.
“I think overall we have a market that, for the first time in years, is starting to show some tightness,” Hansen added.
Maximillian Copestake, executive director of European coffee sales at Marex, said coffee had been engaged in a “massive price race mostly driven by shipping disruptions”.
“For the past five to eight years, we’ve had supplies [concentrated in] “One or two of the big coffee production assets, one is Brazil, one is Vietnam,” he told CNBC by phone.
“If you have damage in one or two of those countries, which we have, the market often goes crazy trying to encourage other countries to produce coffee. That’s the basic principle, and then the cherry on top has really been shipping disruptions. So. What was already a tight balance sheet, which was supposed to be trading into a potential price hike later in the crop, has only exacerbated these shipping disruptions that we’ve seen.”
Copestake noted that it takes about two years for coffee production to respond to a price change.
“I don’t think we’re in any way out of the woods yet,” he told CNBC. “But when the price goes up, you pull every single bag of coffee available in every farmer’s warehouse to market to market, because the prices are excellent. So there is an incentive to grow more, but also to reduce the stock in the original and bring those stocks to the destination. I think we’re probably well on the way to doing that. “.
He added that he expected prices to remain high and volatile in the future.