Coffee has fallen below a dollar a pound to trade close to its lowest level in more than a decade, but a global glut that pushed prices down for the past two years may finally come to an end in 2019.
“The coffee market is fighting a war on a few different fronts at the moment,” says John Caruso, senior market strategist at RJO Futures. Brazil’s 2018 bumper crop, which produced a record 62 million 60 kilogram bags of Arabica and Robusta coffee, has pushed prices to multiyear lows—well below the cost of production for most farmers, he says.
For now, “favorable near-term weather for what is expected to be an ‘off year’ for coffee production has put a damper on prices to start out 2019,” says Caruso. After a big production year, coffee trees produce a bit less the following year as they recover. “The slump in the Brazilian real versus the [U.S. dollar] has also put pressure on the market, as the two are highly correlated,” he says. Coffee is globally priced in dollars.
Caruso says the cost of production for most farmers stands at $1.20 to $1.50, so with prices at sub-$1 levels, he also sees a possible supply deficit on deck. “I love coffee from a value standpoint,” he says. “We think that any little catalyst—whether it be weather related, currency related, or even short covering from its massive net speculative short position of 63,000 contracts, could create a buying spree for value hunters.” Prices could rebound to $1.
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