Arabica coffee prices for July delivery climbed to just over $3 a pound in New York – a price that has not been seen since a devastating frost took prices up to $3.34 in 1977.
Keith Flurry, senior commodity analyst at Rabobank, told BeverageDaily.com that prices broke the $3 mark in New York yesterday despite “no new fundamental information in the last couple of days.”
Speculative demand is therefore thought to have played a role in the latest spike. Flurry said: “Much of the gains past $3.00 were technical with investors seeing strength in the market and buying, which pushes prices higher.”
A weakening dollar encouraged the speculative push by reducing the relative price of coffee for international investors.
Nevertheless, the market analyst said the market had moved initially on more fundamental information.
Next season is off-season for coffee, when farmers let trees recover. There is concern therefore that supplies may be insufficient to meet high demand coming from both developed and emerging market.
Flurry said this has recently been priced into the market as has ‘a risk premium’ associated with the possibility of frosts in Brazil.
The analyst said a frost has not hit Brazilian coffee farmers for years and is unlikely to do so this year as production has largely moved out of the danger zone. But there is still a risk and if frost does hit the impact on prices would be major.
Flurry said: “The market simply wouldn’t have enough supply to meet demand and you could see some pretty extreme prices.”
Another factor putting upward pressure on prices is recent rainfall in Colombia which has affected the mid crop harvest. With more rain forecast next month, prices could rise even further in the short term.