Coffee futures settled the Wednesday trading session lower, despite reports that the global coffee supply could widen on lower Brazilian production levels. Coffee prices have been off to a strong start in 2021, joining the broader commodities supercycle trend that is pervasive throughout global financial markets. Should the deficit balloon throughout the year, could coffee test a seven-year high?
May coffee futures dipped $0.0075, or 0.55%, to $1.365 per pound at 17:38 GMT on Wednesday on the Chicago Board of Trade (CBoT). Coffee is already poised for a weekly gain of about 6%, adding to its year-to-date gain of close to 8%.
According to Dutch bank Rabobank, the global balance supply deficit is forecast to increase to 2.6 million 60-kg bags in the 2021-2022 marketing season, up from 1.1 million bags initially projected in December.
The institution, which is a power player in the agriculture sector, anticipates that the Brazilian crop will come in lower by 1.2 million bags. Colombia is also projected to see a production decline of approximately 300,000 bags.
But why is not higher, considering the substantial output reduction? Rabobank also decreased its projection for total demand by 500,000 bags.
We trim our 2021/22 production number by just over 2 mln bags – 1.2 mln bags of this drop comes from a downward adjustment in Brazil. Net imports in non-producing countries continued to come in weak in Q4 202.
Overall, speculation, shipping costs, and rising demand for stockpiles could support higher coffee prices this year.
The commodities sector has been engaged in a massive bull run, with nearly everything rising simultaneously. The industry – agriculture, energy, livestock, and metals – has seen tremendous demand worldwide at the same time, weighing on inventories output capabilities. Moreover, China has been purchasing immense volumes of corn, soybeans, wheat, copper, and crude oil. For market analysts, the question remains: If China stops buying, will the bull run cease?
In other agricultural commodities, March corn futures added $0.045, or 0.81%, to $5.57 per pound. March wheat futures picked up $0.14, or 2.09%, to $6.8425 per bushel. March soybean futures soared $0.1575, or 1.12%, to $14.2425 a bushel.