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Coffee could rally for years after hitting 10-year high, analysts say


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The coffee market is at its highest point in 10 years. Analysts expect the tightening to last until 2023.

The price of December coffee contract delivery was $2.34 per kilogram at Monday’s closing trade. The price of coffee futures at New York’s Intercontinental Exchange hit $2.46 on Thursday. This is the highest level since 2011 when it was above $3 per pound.

In the meantime, Friday’s International Coffee Association benchmark price of $2.07 per pound was up 85% compared to a year prior.

Ole Hansen, head of commodity strategy at Saxo Bank, told CNBC that over the past 12 months, “a perfect storm of events [has been]We are all conspiring for our beloved bean to get a boost.

He said that the question of future price action will be how long-lasting these changes are. “I think we need to focus on what’s been unfolding in Brazil this year, where we’ve had a generational low in temperatures, a very quick spell of frost which hit some of the growing areas, and we’ve had a period of drought – this has left the 2022 crop in a bit of a precarious state.”

Hansen said that the adverse weather events could affect yields in later years, in 2022 and perhaps even 2023.

He said that coffee rose to $3 per pound in 2011 after another Brazil crisis. These are the numbers that make the market wonder if we will reach these levels again. I keep Brazil in mind and, if projections for the next months confirm a slowdown in production, the possibility of our coffee becoming more costly is real.”

Alongside bad weather, global supply constraints have had a substantial impact on the coffee market because producers and roasters — the companies that refine coffee into the product we drink — are often located in different countries. The exporting of countries, such as the USA and Canada, also contributes to market uncertainty. Ethiopia, which is on the brink of a civil warVietnam and Thailand, where there is a rising number of Covid-19 cases. This could lead to production.  

Hansen stated, “I think that, on balance, there is a market that, for first time in many years, starts to show some tightness,” Hansen continued.

Maximillian Copestake (executive director, European Coffee Sales at Marex), stated that coffee is in an “incredible price race, which is primarily driven freight dislocations.”

“For the past five to eighte years we have had supplies [concentrated in]One or two large coffee-producing nations, one being Brazil, and one being Vietnam,” he said to CNBC by telephone.

The market will go crazy if there is damage to one or two countries. This has happened to us. This is the core principle. The freight disruptions are the real cherry. This has led to a more tightening balance sheet that should have been traded off in price rallies later on. However, we have seen freight disruptions which have only aggravated the situation.

Copestake pointed out that it can take approximately two years for coffee to react to an increase in the price.

He told CNBC that he didn’t believe we were “out of the woods” yet. But when the price rises, every bag of coffee in any farmer’s stockroom is taken to the market for commercialization, as the prices are great. This creates incentives to not only plant more but to also reduce origin stock and get those stocks to the destination. We are probably on the verge of that.”

He said that prices will remain volatile and high in the future.