Coffee Eases on Profit-Taking, Industry Still Warning of Rising Inflation

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Coffee futures further eased midweek, with investors continuing to take profits and weather conditions beginning to improve. Coffee prices have skyrocketed this year, touching their best levels in four years amid falling output and surging demand. But will coffee continue to fall after hitting its 2021 peak? Industry analysts are doubtful.

December coffee futures tumbled $0.005, or 0.27%, to $1.8685 per pound at 17:29 GMT on Wednesday on the US ICE Futures exchange. Coffee prices are up 47% year-to-date and have soared nearly 54% over the last 12 months. This is the highest the bean has traded since 2017.

The primary factor for the easing in coffee prices has been traders taking profits early. However, market analysts believe that investors will dive back into the coffee market next month due to the widely expected supply deficit.

According to the International Coffee Organisation (ICO), global production is projected to fall below demand in the next marketing season that starts in October. Industry observers warn that there is no relief coming to global supply chains, except roasters transitioning from arabica to robusta.

For the most part, however, shipping backlogs, strict COVID-19 public health measures in key producing areas, and the 0.7% slide in the US Dollar Index (DXY) over the last month could further support the agricultural commodity’s bullish trend. Another critical factor has been the weather in Brazil, the world’s largest coffee producer.

The Southern American country has been decimated by a serious drought this year, and this is expected to be followed by frost. Both weather conditions have harmed the nation’s coffee trees.

Overall, this would have a ripple effect for consumers, although Starbucks purchases its coffee ahead of time and has introduced hedging mechanisms to lock in prices. But J.M. Sucker, which owns Dunkin’ and Folgers coffee brands, are sounding alarm bells about “high single-digit cost inflation.”

In other agricultural commodities, October corn futures surged $0.1425, or 2.74% to $5.345 per bushel. October wheat futures added $0.11, or 1.57%, to $7.1175 a bushel. October soybean futures rallied $0.13, or 1.01%, to $12.955 per bushel.

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