Coffee Falls

Coffee futures took a nose dive and dropped 8% in the past two days. The new unicorn frappuccino is not to blame.  Instead, it is the Brazil harvest that is pressuring the market.   This year, it will add to the global supply, despite being an “off-year” for the crop there.  The trees have a natural cycle that typically leads to higher production every other year. This year, production is expected to fall over 15% in Brazil from last year.  But given no urgent supply issues, traders are looking ahead and anticipating a massive Brazil crop in 2018.  See price chart below:

Coffee, futures, price, commodity, brazil, harvest

This move coincides with a seasonal move seen in most years.  The Brazil harvest typically pressures the market even during off years.  As a result, farmers process and sell more coffee beans, decreasing the global price.  Commercial sellers of coffee potentially hedge their risk by selling coffee futures to lock in their price.

Continuing the Downtrend

Prices slid down ever since the dryness in Minas Gerias was limited by decent rains in late January.  A stronger La Nina would have led to higher chance of drought for some of the southern growing areas. Colombia (worlds 3rd biggest produce) coffee areas were also spared most of the extreme flooding sometimes observed in La Nina years.

Jim says “It will take a Brazil freeze scare in the next few months (Brazil’s winter) to take us out of the doldrums.”  He has been bearish most commodities as he mentioned in his interview in Bloomberg. Watch it here: https://www.bestweatherinc.com/on-air/jim-roemer-bloomberg-tv-31417/