by Ilya Byzov
This week, coffee prices continued their ascent, climbing 2.95 cents from Friday to Friday to end at 141.45.
The main driver behind the rally has been continued interest in the commodity complex as a hedge against inflation, as well as dry weather in Brazil.
The first factor is largely stemming from the economic recovery experienced in the US. With stimulus checks circulating through the economy, consumer spending is rising rapidly. In Europe as well, people are emerging from lockdown and vaccination progress is leading to better than expected unemployment figures.
All of this is pointing towards a summer of massive spending amongst developed countries.
The demand for goods and services combined with extremely weak fiscal policies and low interest rates risk overheating economies, creating runaway (or at least more than expected) inflation. Commodities, by their share of having intrinsic value, are traditionally a popular investment vehicle in periods of expected high inflation.
Coupled with continued dry weather in Brazil, agricultural commodities saw $10billion of net inflows to take them to a new record (in $value terms).
It should be noted that coffee is only marginally affected by the dryness, as most of the dryness is further to the west relative to where the coffee is grown, and we are approaching harvest where dry weather is beneficial for quality. Nevertheless, we still saw $1.5 billion worth of investment into coffee futures this week, showing very strong interest in the Brazil lower production story.
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