Coffee prices defy weakness of commodity prices

Over the past two days of trading, Arabica coffee has risen by 10% in price to a good 137 US cents per pound, while Robusta coffee has gained by roughly half that amount. There has been no new news, apart from the fact that the Brazilian real has not fallen any further of late. Clearly market participants needed some time to digest the worsened outlook for the coffee crop in Brazil. 

Commerzbank says, "After short-term-oriented market participants had previously topped up their net short positions in Arabica coffee to their highest level since the end of 2013, a reduction began in the week to 4 August that is likely to have continued on a massive scale in recent days. This is because it is becoming increasingly clear that the actual Brazilian crop will end up in the lower range of the currently forecast spectrum of 40 to 52 million bags." 

Some analysts, such as those at Procafe, even predict a figure below the 40 million bag mark, while the National Coffee Council forecasts exactly this amount - because the after-effects of the drought in 2014 and early in 2015 are resulting in less well-developed and smaller beans. 

At the same time, the International Coffee Organization (ICO) has warned that an unexpectedly poor crop could lead to a massive surge in prices given the low worldwide stocks. Although it remains to be seen whether the price movement will prove lasting, it does at least give a foretaste of what is possible if the ICO's prophecy turns out to be correct, adds Commerzbank.