Volatile coffee climbs to defy slump in equities, commodites

[CHICAGO] Coffee futures in New York rose. That's not a misprint.

Amid crashing equities and commodities, arabica coffee, the most-volatile raw material this year, posted a rally on a shortfall of high-grade beans favored by Starbucks Corp.

Arabica for May delivery rose 1.7 per cent to close at US$1.092 a pound on ICE Futures US in New York. At one point, the price jumped as much as 3.3 per cent. In the previous three sessions, the commodity plunged 12 per cent, the most since October 2008.

"With the very tight supply situation for mild arabicas in Central America, coffee should not go down," Rodrigo Costa, the US-based coffee director at Comexim, said in a telephone interview. Even in Brazil, the world's top producer and exporter, "there's no availability," he said.

As prices jumped in the previous quarter, Brazil almost "sold out" of the 2019-20 crop that was smaller than expected, Mr Costa said.

Differentials for Colombian and Central American beans remain elevated in the cash market, and relief won't come until the third quarter with Brazil's new crop.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

"If markets calm down," there's a chance arabica may climb as high as US$1.50, Mr Costa said.

"In Brazil, what's affecting the differentials is the lack of coffee," Renata Eller Santos of Eller Coffee Trading in Varginha, Brazil, said in an interview at the National Coffee Association convention in Austin, Texas. "Last year's harvest was not only smaller but was also of lower quality."

While the nation is set to reap a bumper crop in 2020, "it's all going to depend on the quality," she said. "Producers are doing well. The ones that held back and still have coffee will now hoard for longer, so until the start of the new harvest, it will be tight."

BLOOMBERG