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Coffee Futures Surge on Supply Worries

January 10, 2017 at 18:16 by Andrew Moran

Coffee futures are surging on Tuesday as weather related events are beginning to impact supplies. Traders are taking a look at global weather forecasts and are starting to witness lower coffee supplies, particularly in Guatemala and Indonesia.

March Coffee C futures climbed 2.37% to $1.477 per pound at 16:49 GMT on Tuesday on the ICE Futures exchange. Coffee futures have kicked off 2017 on a high note after cratering about 20% since the beginning of November to end the year.

Last year, coffee futures surged to as high as $1.78 a pound before plummeting to as low as $1.33 a pound.

What is driving the gain in coffee prices this week is the growing concern over global supplies. Due to weather events occurring in key coffee regions, supplies are starting to become affected. In Guatemala, for instance, exports diminished from 126,170 bags in December 2015 to 109,307 bags in December 2016. Indonesia is also projected to see its production efforts shrink as the Ministry of Agriculture estimated that coffee output would be 637,539 tonnes in 2017, down from 639,905 tonnes in 2016.

The poor crops in Brazil are not helping the coffee market at all.

Reportedly, these developments could be offset by top robusta producer Vietnam as its harvest is near 90% complete. Also, Arabica supplies have been improving since October, which may assist in balancing out supplies.

Experts suggest that a stellar post-Christmas rally in the futures market may be overextended as prices in the physical market are unable to keep up.

The demand for coffee remains strong, especially as millennial consumers – those born between 1980 and 2000 – make up for the reduction in consumption by older consumers. Studies have found that younger consumers are imbibing coffee at a younger age and are more dedicated to satisfying their appetite for coffee than their preceding generations.

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