The increasing volatility of the Arabica coffee market has during the last few years pushed more than just producers to scratch their heads trying to understand what is going on. And from growers to trade, analysts and roasters the name of the game is volatility and how can you possibly try to maintain a business without any idea of where prices are headed? The answer is you can’t and no-one has been able to answer the million-dollar-question as to just when a rebound in prices may happen. But there is a lot of indicators that industry participants today can watch that will help give some ideas as to what could push prices for both Arabica and Robusta coffee back up – or what kind of news that still could lead to more months of depressed market conditions ahead.
(This report was first published in the May 2013 edition of the GCR Magazine, but the order of today’s market is more often than not ruled by issues that do not always appear obvious to people in coffee, so we consider this article as relevant now as ever)
A SPECIAL REPORT BY MAJA WALLENGREN
There used to be a pletofora of indicators that news agencies would feed to the commodity markets in a never-ending daily stream of news considered potentially ”market moving” to coffee prices. These days are long gone. Since the large pension and investment funds moved into the commodity and coffee market in the wake of the 9-11 terrorist attack in the U.S. and the following global economic crisis the impact on prices from core fundamentals of supply and demand has been limited to a few and far between factors. And even when such core fundamentals, like the crop prospects in the world’s two largest producers Brazil and Vietnam, are present in the daily operations of the futures and options market at the coffee exchanges in New York and London, they may still not influence prices.
1. The Global Economy
The one indicator that today is becoming increasingly important to coffee prices has very little to do with coffee at all. The global economy has continued to take on more importance/role in dictating which way the market goes. Why, ask especially many coffee producers, and they are even more baffled when they see prices going down or staying weak even when strong consumer demand across both industrialized and exporting countries remaining resilient in the face of the weak global economy. It’s all about the “sentiment” and if traders and fund managers feel there is reason to be optimistic that the world economy is on the right track, they will feel better about buying coffee.
As the new 2013-14 coffee harvest is getting underway in the world’s largest producer Brazil, speculation about the impact on prices has never been bigger. All indicators are that the new Brazilian crop will produce the biggest harvest Brazil has ever seen in an off-cycle, but forecasts vary from 47 to 53 million 60-kilogram bags and that still leave a lot to be determined. In the days of the “old market” up until the funds got involved and took over a large share of positions previously held by smaller independent players, any word on Brazil would immediately be …
In the last decade Vietnam has consolidated its position as the world’s second largest coffee producing nation, and speculators and market players have increasingly been watching and debating the size of the Vietnam crop. Despite that some segments of the market…
4. Rust Outbreak in Central America
There is no denying of the severe impact the ongoing rust outbreak has on Central America and Mexico but while losses alone to the 2012-13 harvest are estimated to reach a minimum 2.5 million bags, the price issue versus crop damage is not that straight forward.
“Losses have been determined in percentage per country, but these numbers are tricky because we are still harvesting coffee and exporting coffee,” said Rodolfo Mora, a coffee trader in Costa Rica…
After four years of bad weather complicating recovery efforts by Colombia’s coffee producers the Andean country has lost influence on prices as a major indicator. But the downward trend in prices during the last year has in part been supported on the believe that
6. US financial news
Back to the complexity of the global economy, even if damage from the rust outbreak continues to climb, and even if other big origins like Colombia and Indonesia continue to lag behind the expected crop recoveries, general economic indicator can at any given move the market and …
7. Euro-Zone News
Euro-Zone debt news is another of these sensitive indicators to look out for, and so far this has not been very encouraging for coffee. The Euro crisis started out with ballooning debts in Greece, Ireland and Spain and every time the continent seem to be trying to get a new bail-out
“The euro crisis has long since gone from being a currency and debt crisis to becoming a full-fledged economic crisis, and now it is poised to become a political crisis as it destabilizes governments throughout Europe,” –MarketWatch
By the end of everything it may all be about China. If demand and consumption is up in China everything looks better for the world economy and we are not only talking coffee. Whether it’s minerals and metals, grains, food items or electronics, if China continues …
Coffee stocks data for green coffee held by importing countries will without doubt become another closely watched indicator in the market again. When reports of the rust outbreak started reaching the market in earnest in February prices did not react at all, but the growing supply problems have …
10. The Weather
The increasing negative impact in recent years from erratic weather in coffee producing countries problems remains the wild card for coffee. And analysts and exporters have expressed concern that although the market is covered with the coffee it needs for now, the balance could quickly tighten if any weather problem suddenly occur in Brazil.
For the full copy of my special report on the Top-10 Price Trend Setters, please see the May edition of the Global Coffee ReviewTo see the full article, please check out:
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