One of the most traded commodities; Coffee prices have been extremely volatile this year due to threats to supply. A drought experienced by the Coffee belt in Brazil, resulted in crop damage. Brazil is the largest coffee producer and is one of the major suppliers to the $80 billion American coffee industry. It is clear that coffee demand is starting to outstrip supply, especially as domestic consumption in Brazil, Vietnam and Colombia, which supply 60% of global coffee beans, continues to rise. Stockpiles are declining on strong exports and healthy demand, meaning supply may not be able to meet demand, hence prices should rise in the next quarters. There are estimates of a deficit of around 7 million bags of coffee for the current 2014/15 coffee season. These supply and demand fundamentals represents potential investment opportunities.
Investors Notes:
- The International Coffee Organisation estimated that for 142 million bags of coffee produced, 149 million will be consumed.
- On average, global demand rises annually by almost 2% and with stock being used to supply this demand; prices will rise.
- According to the U.S. Commodity Futures Trading Commission, long positions in ICE Coffee Futures are outweighing short positions with an average rise in price of 7.79.
- From the charts, there is some consolidation after a recent sell- off on positive weather news in Brazil, however price action is close to the 20 day moving average.
- Banc De Binary analysts predict that while a volatile commodity, there is some evidence prices will push higher, indicating a potential long-term upward movement in Coffee.