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Coffee Futures Dip As Global Supply Glut Continues

April 2, 2019 at 18:49 by Andrew Moran

Coffee futures are trading lower on Tuesday as the global supply glut continues. With prices falling under a buck, coffee has cratered to a 13-year low, leaving growers drowning in red ink. The bearish times may be short-lived, though, because a new forecast suggests the surplus may turn into a deficit.

May coffee futures tumbled 0.55 cents, or 0.6%, to 91.55 cents per pound at 18:04 GMT on Tuesday on the US ICE Futures exchange. Coffee prices have had a rough start to 2019, sliding nearly 13% in the first quarter. Investors are not optimistic that coffee can reverse course in the short-term.

Coffee has been in a freefall since September 2016 when prices peaked at just under $2 per pound. For the second consecutive season, coffee inventories have been oversupplied with production topping two million bags. South America has accounted for most of the increase in production volumes, even as farmers adapt to the situation by using less fertilizer and prune trees.

Over the last year, global coffee growers have been impacted by the low prices. Industry representatives say that the future of the coffee industry is at risk, and it may not recover once prices do rebound.

In addition to the supply glut, prices have been dragged lower by a sliding Brazilian real, which recently tumbled to a new year-to-date low. The currency has been slumping on reports that the federal budget will require additional approval from the lower house of Congress, sending Brazilian financial markets lower. For now, experts anticipate the real will dictate the market in the short-term.

Will the supply glut persist? A recent Rabobank forecast found that there could be a global coffee deficit of 2.3 million 60-kilogram bags in the 2019–2020 season. Researchers cited lower production in several major markets.

Some analysts do think coffee futures could reverse course this year and surge to $1.20, whether it is because of weather conditions or short covering – net speculative short positions total 63,000 contracts.

In industry news, Burger King is attempting to become a major power player in the brewing coffee war. The home of the Whopper plans to offer a $5-a-month subscription that allows you a daily cup of hot coffee that would total 17 cents per day.

In other agricultural commodities, May corn futures dipped $0.0025, or 0.07%, to $3.615 per pound. May wheat futures rose $0.0125, or 0.22%, to $4.6375 a bushel. May soybean futures advanced $0.0425, or 0.45%, to $8.995 per bushel.

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