Following one of the worst crop years caused by adverse weather developments in Brazil, a shortage of shipping containers has further obstructed coffee exports thereby tightening supplies at roasters in Europe and the US. Brazil’s November coffee exports at 2.918 million bags each containing 60 kilos trailed the five-year average by 8% while over in Columbia, the world’s second largest shipper, coffee exports fell 11% to 1.132 million bags. Tightening supply and supply chain issues has reduce coffee stocks at ICE exchange monitored warehouses to 1.6 million bags, or 11% below the five year average.
While these numbers alone do not warrant a near doubling of the price of Arabica coffee this year, it’s the prospect for even tighter markets during the next couple of years that continue to attract a lot of nervous attention. The frost damage to trees earlier this year has in some areas led to replanting while other farmers have switched crops.
The below charts shows some to the latest developments supporting the market.
The futures forward curves in commodities often tells an even greater story than what you find from just watching action in the near futures month. A half decade of oversupply between 2015 and 2020 created a period where buyers constantly lost money. During this time, price spikes were always followed by sharp reversals, with a major driver being the shape of the forward curve. An oversupplied market is categorized by an upward sloping forward curve, where the cheapest price is found at or near the spot price. Rolling a long position basically meant traders were constantly selling at a lower expiring price than where the next month was trading.