As of this writing, the price of the most actively traded NY coffee futures contract (SEP23) sits at 155.80. This is a 24 percent drop from the 6-month high of 205.25. It is worth looking back over the past half year to see how we ended up at this level and also to better understand where prices may go from here…
In early January 2023, we released a podcast recapping a trip I took to Brazil in December of 2022 – the sentiment felt after that trip (and reflected in the subsequent podcast), was certainly more on the bullish side of things given what I saw in Brazil and where the market sat at the time. We did see a rise in prices over the next several months, peaking with a high of 205.25 on 4/18/2023 – this high was reached on the back of a combination of several macro factors, prime amongst those was weakness in the US Dollar that triggered speculative longs across most of the soft commodity complex.
Since the high reached on 4/18, prices have fallen steadily as the fundamental picture has clarified somewhat and more firm evidence of a surplus in supply has emerged. Recently the market has found support in the 155.10 – 155.50 range, but the frost forecast in Brazil remains optimistic for coffee buyers and if we get through the next several weeks without a major Brazilian frost, prices could move towards and into the 140’s (the low risk of frost in Brazil could already be priced into the current levels, which may leave less room on the downside, but time will tell there…). Further complicating the picture is a high risk of El Nino this year and also the approaching hurricane season, both of which could pop a hole in the bubble of bearish pressure the market finds itself under currently.
Roasters of all sizes needing to bulk up their position on core coffees for the next several months should take advantage of these recent and nearby lows and fix open contracts or book forward spreads as necessary (this is a great time to consult with your trader and make a plan through the Fall of 2023). We are active in this market daily and are always willing to help clients navigate any volatility that may arise – this is what we love to do.
