Future Growth Of Volatile Cocoa & Coffee Rests In Emerging Markets

December 08, 2014

 

 

As with cocoa, despite the possible potential for coffee in the long term, in the short term, the performances of coffee futures and the price of coffee itself over the past 10 months illustrate just how volatile coffee can be.

In coffee’s case, the threat to supply (which forced its price so much higher in October) was the Charybdis of drought in Brazil (and the effect it would have on this year’s production.) As the ICCO described the situation, with a monthly average price the highest since February 2012 and 6.9 percent higher than September … “The price swing has been driven almost entirely by weather reports from Brazil, with dryness at the beginning of the month spurring prices higher, before scattered showers dampened any bullish spirits.”

The market’s concerns now, however, are “whether damage to the 2015/16 crop is already irreversibly, and to what extent these rains can encourage new flowering.”

Conclusion

The performances of both cocoa and coffee this year demonstrate importantly not only how exogenous factors (in cocoa’s case, Ebola), but also current conditions (in coffee’s case, the drought in Brazil), continue to have a major influence on the markets for individual commodities, whatever the long-term outlook for any of them may actually be.

Taking a positive long-term view may get you where you want to go in the end, but the ride along the way could be quite bumpy.

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