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Coffee Rebounds Despite Concerns of Falling Demand, Oversupply

March 18, 2020 at 16:00 by Andrew Moran

Coffee futures are rebounding midweek, despite concerns of falling global demand and an international supply glut. With the Covid-19 pandemic impacting economies everywhere and the personal finances of millions, there are fears that retail coffee sales will experience a significant nosedive and supplies will swell.

May coffee futures surged $0.058, or 5.65%, to $1.084 per pound at 15:40 GMT on Wednesday on the US ICE Futures exchange. Coffee prices have slumped nearly 4% over the last week and have cratered 16% year-to-date.

The effects of the Wuhan coronavirus have hurt the overall coffee industry. Bean prices have weakened as demand has crumbled due to consumers avoiding coffee shops and brewing their java at home. A lot of the key coffee chains are suspending in-store service, choosing to offer delivery, takeout, and drive-thru instead. There is plenty of uncertainty in the market right now.

With many of these measures taking place toward the end of the first quarter, investors may not get a glimpse into how much the pandemic has affected coffee brands until the next earnings season. Overall coffee consumption is expected to plunge globally, while many coffee-producing nations estimate record output. Brazil anticipates a healthy crop yield until September 21, producing as many as 69 million 60kg bags, beating last year’s record of 64.8 million bags. Vietnam also expects a good yield.

Analysts do note, however, that if the coronavirus spreads to these coffee-producing markets, it could impact output and supplies. This would push up prices. So far, the number of cases in Africa and Latin America are surprisingly low, but anything could happen in this environment.

But investors have been participating in some bargain buying this week. The iPath Series B Bloomberg Coffee Subindex Total Return ETN (JO), for example, has rebounded from its 52-week low of $14 as it is trading about $33.

In other agricultural commodities, May corn futures shed $0.06, or 1.74%, to $3.38 per pound. May wheat futures added $0.0975, or 1.95%, to $5.09 a pound. May soybean futures picked up $0.0675, or 0.76%, to $8.305 per pound.

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