This week, coffee prices shot up violently, rallying 11.45 cents from Friday to Friday to end at 152.9.
Prices are now up nearly 20% since the end of March and are at the highest level since February 2017.
Most of the action last week occurred on Wednesday, when futures prices rose 9.5 cents, the biggest one day move in coffee since 2014 when a drought threatened to devastate Brazil’s crop.
Drought appears on everyone’s minds as well this time around.
March and April rainfall in Brazil has been exceptionally low, affecting primarily the Corn and Sugar crops.
We believe that there is a minor effect on coffee as well, but with the harvest approaching, a lack of rain is actually necessary to maintain quality for the natural drying process, which is dominant in Brazil.
Better demand outlook continues to be another catalyst for a broader commodity rally, and will continue to support prices throughout 2021 so long as central banks maintain low interest rates.
However, we think that perhaps coffee futures have gone up too high too fast, and are looking for a pullback this week toward 140.
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