RNY Market Watch Special Report: Coffee Prices at 2-Year High

Welcome to our special edition of Market Watch! Andrew Blyth & Tom McLaughlin are here to provide you with the latest insight into the coffee market, how we’re experiencing the highest priced coffee in 2 years, and more as of April 2024.

April Sees Highest Priced Coffee in 2 Years

Hello friends of Royal New York! While this isn’t the usual schedule for our RNY Market Watch series, the May ’24 “C” coffee futures prices have skyrocketed this past month and we want to provide some insights into this wild market.

How We Arrived at this Point

The below chart illustrates the coffee futures prices from the past 6 months. Though coffee traded below $1.80/lb. on March 19th, the market has since jumped 70 cents (39%). With a high of $2.5370 on April 18th, we are now seeing the highest priced coffee market in 2 years.

2024 highest priced coffee chart

Price volatility has been synonymous with coffee for years, but a 40% change in less than 1 month? There have definitely been previously extreme price shocks like we are seeing now. However, these have usually been associated with justifiable reasons. For example, an overnight frost in Brazil can cause a significant price change or the historic rally in 1997 from $1.25 to $3.18 due to supply shortages in the ICE Certified coffee stocks. That being said, today’s Certified stocks are over 600,000 bags. Brazilian weather is favorable for coffee growing, and a good size crop in Brazil will start in about a month from now. These factors make this recent rally appear to lack the fundamental support to justify such an aggressive market spike.

There has also been much talk of the current tight supply in the robusta market. Vietnam’s latest crop came in at approximately 15-20% lower than the previous, which helped start this rally. Even so, recent above average temperatures and dry conditions leave many concerned about the next Vietnam robusta crop as well. This has been countered by record Brazilian arabica & conilon/robusta coffee exports, totaling close to 25 million bags in the past 6 months. Brazil has certainly stepped up to fill in any “supply shortage.” So, what gives?

Understanding the Coffee Market

Firstly, there are many different types of traders who participate in both financial and physical commodity markets. The coffee market has its usual “commercial” traders, such as roasters, producers, exporters, and coffee trade houses. Comparatively, there is also large participation from “non-commercial” traders in the coffee market, consisting of Index funds, managed commodity funds, and speculators. This group of “non-commercial” traders currently has close to 40% of the open futures contracts in the coffee market, also known as the Open Interest. These deep-pocketed Wall Street funds and traders can influence prices well above (or below) the rational supply/demand levels for coffee. The all-time high for Open Interest by the commodity funds is 59,000 open contracts. Today, that number is close to a new record.

Some in the industry draw parallels between coffee and the cocoa market. Cocoa futures prices have typically traded around $2,500-$3,500 per metric ton. They have, however, seen prices trade over $11,000 per metric ton due to severe weather problems in the Ivory Coast leading to limited supply. Commodity funds have helped augment those prices, and it looks like the next target for these “non-commercial” traders could be the coffee market.

What having the highest priced coffee in 2 years means for you:

While this news is frustrating, it doesn’t change the fact that we all need to buy and sell coffee to keep our businesses running. So, what’s the approach in a market like this? First of all: don’t run out of the coffees that are most important to you. Buy hand to mouth as needed until the market corrects. Alternatively, reserve your share of bags to guarantee your desired quantity, but wait to lock in the price for larger volumes until we retreat to more digestible levels. If this is an unfamiliar strategy, give us a call so we can walk you through it. We have been here before, and we’ve made it through; we will do it again.

Stay in touch,
The RNY Trading team

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