Uncertain coffee market as prices skyrocket

There has never been as much uncertainty in the coffee market as there is currently, with the commodity hovering at the highest levels in decades, says The Public Ledger, a leading news, analysis and information source for the global commodities market.

“Why was there suddenly a rise of 12¢ last week?,” asked one Switzerland-based consultant. “It’s not due to frost in Brazil for example, or any (fundamental factors) it’s just pure technical funds who are buying the market. That’s why the market is moving like this. We have difficulty telling our customers why it’s going up or down. It’s a really messy market,” he said.

The premium of arabica over robusta has widened slightly of late due to current supplies of arabica being very tight, according to Stefan Uhlenbrock, analyst at Germany-based FO Licht.

“Although it is true that London usually follows the New York market, the latter has skyrocketed over the last couple of months to record levels, and the London market has not been able to cope with that,” said Mr Uhlenbrock. “The differentials have widened because arabica supplies are currently very tight – especially for high-quality arabica – while robusta supplies are not so tight.”

“The New York market is more liquid so it’s easier for them to get in and get out. In London, as a single entity or single fund, it’s easier to move the market in a certain direction,” continues Uhlenbrock.

However, some believe fundamental factors are not affecting the coffee market at all at the moment.

“It’s difficult to explain what’s happening now on the New York and London markets. It’s a lot to do with the speculators and the funds who are playing with this market at the moment,” noted the Swiss consultant. He added that the widening premium of arabica over robusta was little to do with fundamentals and is more “technically driven”.

“I’m not long in the business but when I speak to people older than me who have been doing this for 25 years, they really don’t understand it. It’s a really big mess and it’s difficult to know what will happen next,” he conceded.

One Colombian coffee roaster blames speculators for “unjustifiably high” coffee prices. “It’s true that there have been some challenges on the supply side – floods, fungus, trucking strikes. These have all resulted in tighter supply than normal.”

However, the roaster said that speculators are taking advantage of a worse-than-normal supply situation, which is making it difficult for those who actually take physical possession of the coffee.

“Our hope is that the price comes down to a more sustainable level with the harvest in Brazil this crop year. We’re told the fundamentals always win, if this is the case, the market is extremely over bought, and we expect a major correction,” he said.