Agricultural Analysts Urge to Abandon Tracking Cryptos for Now to Watch Coffee Futures’ Space Flight

Coffee futures soared 10% on Thursday, July 22, with prices posting their largest daily gain since early 2014 and reaching their highest mark since November 2014, as a severe combination of drought and frost threatened coffee crops in the world’s largest coffee grower, Brazil. The most-active September Arabica coffee futures contract KCU21 instantly soared 10%, to settle at nearly $1.94 a pound on the U.S. ICE Futures exchange. Now it is trading around 20% higher for the week, powering a month-to-date hike of around 21%. September Robusta coffee LRCC2 was up 2.4% at $1,774 a ton, having hit a 3-year high of $1,793 per pound. Is it too late to jump on the bandwagon?

An interesting historical revisit was offered by Bloomberg yesterday. According to the U.S. Bureau of Labor Statistics, the last time a severe frost hit coffee fields in Brazil in 1994, it didn’t take long for retail prices to surge to a record. Futures began rallying in April of that year and peaked in July. Then, between June and August, the average price for consumers soared from $2.60 to a then record $4.48 a pound. A further spike in 1997 had futures peaking in May, and retail prices hitting a new high in August.

Coffee is by far the most widely traded of the "breakfast commodities" group – as it dubbed by Investopedia, which is composed of coffee, sugar, cocoa and orange juice. It is also the most actively traded agricultural crop among tropical commodities. July is when coffee trees are flowering and, thus, viewed as the most vulnerable month in Brazil. Coffee trees are extremely sensitive to frost. A light frost will kill the leaves, forcing the plant to regrow them next season, while frosts that last longer than two hours can kill the root system completely. Brazil needed a good crop this year to compensate for lower coffee supplies, caused by the Covid farming restrictions, which came on top of container shipping delays, making supplies tight. So the current severe weather conditions zeroed the possibility of rebuilding coffee supplies for another year. Moreover, there are speculations of a high probability of having the lowest production levels during an “on year” in the last 6 years.

The retail coffee price in June 2021 was up 8.4% from February 2020, but up a more modest 1.9% from the June prior, while the consumer prices index for coffee in June was up 2% from last February and 1.1% from last June.

Some trustable dedicated analysts say that the coffee prices could even climb by another $1 a pound or more later this year, under “certain conditions”: there’s more forecast in the weather outlook, possibly late next week, which could lift prices to $2.30/lb. So, the ultimate answer is yes, it’s time to buy coffee futures, as well as start building home supplies by shopping in a supermarket. There are also two available coffee backed ETFs: the iPath Dow Jones-UBS Coffee Subindex Total Return ETN (JO) and the iPath Pure Beta Coffee ETN (CAFE).