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Supply Concerns Keep Coffee Buzzing

November 1, 2016 at 18:17 by Brent Lantzy

Consumption is going up, but supplies keep getting tighter, and coffee is getting pricier.

Net long coffee holdings jumped 18% to 50,651 futures and options in the week ended October 25, according to CFTC data.

Arabica beans have risen 39% over the past year, making coffee the fifth best performing commodity in the Bloomberg Commodity Index.

U.S. demand for coffee is expected to grow, with consumption increasing 2% per year until 2020, according to a WSJ interview with a spokesman for the London based International Coffee Organization (ICO).

According to an end of the year market report by the ICO, production in Brazil was down 5.3% from the previous year, while production volume in Vietnam, Columbia, and Indonesia increased; however, expectations for the 2016/17 season are diminished by continued worries about La Niña, drought, and other adverse weather conditions. The report also states that the 2015/16 season is in deficit for the second consecutive year, as consumption outpaced production by 3.3 million bags. Some support has been provided by accumulated stocks from the surplus years of 2012/13 and 2013/14, and stocks in importing countries reached 24.2 million bags at the end of June 2016, their highest level since September 2009.

ICE New York coffee futures for December delivery fell 1.7% to 161.400 cents per pound as of 17:54 GMT on Tuesday, while the most actively traded January 2017 contract for London Robusta futures fell 1.4% to $2,153 per ton as of 18:00 GMT.

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