Coffee Justifies Its “Covid Lockdown Gold” Status Once Again

Coffee prices have reached a 10-year high, and analysts expect tightness in the market to continue all the way into 2023. December coffee futures ended Monday’s trading session at $2.34 per pound. On Thursday, coffee futures on New York’s Intercontinental Exchange reached $2.46, marking the highest price since 2011, when the commodity broke above $3 per pound. Arabica coffee is soaring as drought and recent frost events devastated Brazil’s crops. We caught most of the bull move coffee from $1.30 last December to about $2.00 ahead of the July frosts. Meanwhile, the International Coffee Association’s benchmark price was $2.07 per pound on Friday, up 85% from a year earlier.

Brazil factor has always been important when it comes to nearly all rallies in coffee price. However, this time around we contemplate a rare synergy of adversities. For example, we saw the coffee rally to about $3 per pound back in 2011, when we had another Brazil issue. Therefore the main question is whether we can reach similar levels once again.

Alongside bad weather, global supply constraints have had a substantial impact on the coffee market because producers and roasters are very much scattered around geographically. Market uncertainty is also stemming from exporting countries such as Ethiopia, which is on the brink of a civil war, and Vietnam, which is seeing a rise in Covid-19 cases that could hit production.

The bullish factors - why prices could top over $2.50-$2.70 this time around:

• Tight current supplies as a result of the past year's fatal combination of drought and frost in Brazil.
• Very heavy summer rains in parts of Minas Gerais that are now causing disease concerns (from drought to floods).
• Colombia also has crop issues.
• Vietnam container and shipping issues to the global supply chain situation. This, plus wet fall weather is delaying their Robusta harvest.
• Brazil National Supply Company (Conab) cut its Brazil 2021 Arabica production estimate by -8% to a 12-year low of 30.7 mln bags from a May estimate of 33.4 mln bags, down -37% from 48.8 mln bags in 2020.
• Now, near historic heavy October and November rains have caused new disease issues for some Brazil coffee areas. The disease caused by Phoma could lower coffee production even more for the 2022-23 crop. According to Wiki, Phoma tarda is a fungal plant pathogen that causes dieback and leafspot on coffee and was first observed in Ethiopia in 1954 (Stewart, 1957). It poses a potentially serious threat to coffee crops, but climate change may reduce the prevalence of environmental conditions favorable to its spread.