Supply and transport concerns are driving the price of coffee higher
Within the last two weeks coffee has resumed its uptrend, after the price of Arabic broke above the 200 cents per pound level. There are several factors contributing to the rise in coffee prices, however concerns regarding coffee production in the next season play the major role. The coffee-growing areas in Brazil have experienced low temperatures this year, which have had a negative impact on the coffee crops. In addition, farmers had to deal with periodic droughts, which also lowered production prospects for next year. While we should still experience oversupply in the coffee market this year, the situation may change in 2022 and we may witness a deficit. However, the ICO, an institution which analyzes the global coffee market, did not provide any estimates so far, but according to some analysts’ in the worst case scenario, the deficit could reach as much as 5-10 million bags of coffee. The current level of coffee stocks in Brazil is around 3.5 million bags.
In addition, some delivery issues emerge. Currently, deliveries can take up to 100 days compared to 30 before the pandemic period. Production problems are also seen in other countries around the world, such as India and Ethiopia. Finally, it is also worth paying attention to the La Ninca weather phenomenon, which could lead to a further lowering of production prospects in South America.
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Coffee price broke above 230 cents per pound and is trading above the 61.8% Fibonacci retracement of the last major downward wave launched back in 2011 around all-time high. Currently, the price of coffee is about 30% below its record level of 330 cents a pound. Source: xStation5
The price of coffee since the 1970s. As one can see, coffee is approaching its ATH, which has often led to price decline. Nevertheless, prices could have remained at high levels even for several quarters. Source: Bloomberg