Coffee Futures Reach a 12-year high

Coffee prices jumped to a fresh 12-year high on Monday morning as speculative interest in the soft commodity ratcheted up on the back of tightness in the physical markets. A disappointing harvest last year in central and south America has squeezed the market more than usual at the traditionally tightest period of the year, drawing down global inventories and sending stocks certified for delivery to the ICE exchange to their lowest in 10 years. That pushed the price of Arabica coffee – the high-quality variety prized by espresso lovers – up 1.9 per cent to $1.8865 a pound for December delivery on ICE, the highest since September 1997. Traders and analysts said the futures market was being dominated by funds that had been encouraged by the tight situation in the physical coffee market to bet on even higher prices. “At present, the New York futures market is heavily dominated by non-commercials, who are attracted by the bullish story behind Arabicas and the declining ICE stocks,” said Kona Haque, agricultural commodities analyst at Macquarie. The price rises in the futures markets are already beginning to affect the price of a cup of coffee. Earlier this month JM Smucker, which distributes the Dunkin’ Donuts, Millstone and Folgers coffee brands to US retailers, said it would increase its prices by 9 per cent. Kraft has also raised the price of its popular Maxwell House brand. Robusta coffee, the lower-quality variety used mainly for instant coffee, has also risen sharply in price. Liffe December robusta gained 2.6 per cent to a peak of $1,838 a tonne on Monday morning, just short of a two-year high. Prices may ease later in the year as the new crop of high-quality Arabica from Colombia and other countries in central and south America comes to market from October. But some are betting that the La Niña weather phenomenon, which is expected to strengthen throughout the year, will disrupt next year’s coffee production, creating further tightness in the market. In Brazil, the world’s largest coffee grower, the effect of La Niña could be to delay the onset of rains, before producing a deluge when the rains finally come – either of which could stress the coffee crop and reduce yields. Moreover, next year is an “off” year in the Brazilian crop’s biennial production cycle, meaning output is likely to be significantly lower than this year’s bumper harvest. “With prices likely to start anticipating Brazil’s 2011-12 ‘off’ year within a few months, and with the stock cover situation much less than comfortable, prices are likely to remain supported for a while still,” Ms Haque said.

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