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Coffee Futures Slip on Upbeat Supply Outlook

December 1, 2016 at 18:09 by Andrew Moran

Coffee futures are trading lower following a positive report on global coffee supplies. A major coffee trading firm projected that this year’s coffee market would finish in a surplus, which has sent coffee futures lower on Thursday.

December Coffee C futures declined 3.18% to $1.4295 per pound at 16:40 GMT on Thursday on the ICE Futures exchange. Coffee futures have been plummeting ever since they hit their highest levels since February 2015 of $1.7435 a pound.

For much of 2016, coffee traders have been betting that the demand for coffee would be greater than supply this year. The reason for this trade is because dry weather conditions in Brazil have diminished crops of robusta, a type of bean that can be found in instant coffee. Brazil is the world’s largest maker and exporter of instant coffee.

That bet may have been wrong after all. Marex, a coffee trading firm, warned that demand for robusta will beat supply by 5.6 million bags, but the mild arabica variety will fill in the gap. This means that the supply and demand will balance out, which sent coffee futures downwards.

Since September, Brazilian producers have ceased entering into new export contracts and sales commitments due to a reduction in the stockpiles of the beans.

Meanwhile, demand remains strong. Reportedly, millennials – those born between 1980 and 2000 – are pushing up global demand to record highs and boosting sales. It seems that young adults are increasing their daily consumption of coffee at a younger age and at a faster pace, which is helping to make up for the decrease in coffee consumption by their older counterparts.

According to Chicago-based researcher Datassential, millennials account for 44% of U.S. coffee demand. Consumers 60 and older reduced their coffee demand from 76% to 64% since 2008. The same numbers were found for American adults between the ages of 40 and 59.

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