Coffee Market Report

Coffee and the Soft Commodities Market

The coffee price, along with other soft commodities such as corn, soybean and cocoa, has risen significantly in recent years.

In his most recent report, IG Index's Anthony Grech analyses the performance of this soft commodity, with a special focus on the factors responsible for determining consumption and supply in the market.

Below is a summary of the latest free report from IG Index. You can access the full version in the TradeSense Databank found in the PureDeal platform.

The coffee market

Stephanie Kinard, commodities analyst for JKV Global, Chicago, recently warned that unpredictable storms in Central America may threaten coffee supplies. In fact, according to media reports, Honduras was hit by heavy rain and wind from tropical storm Arthur in late May. As a result, some coffee growers reported that flooding has wiped out their crops. [1]

The production of coffee, as with any agricultural commodity, primarily depends on weather conditions, harvesting practices and disease. The possibility of unforeseen weather conditions in the top coffee producing countries could lead to unexpected hikes in price.

Other factors, including an unexpected rise in coffee consumption, could also contribute to price hikes in the short to medium term. Expectations of elevated oil prices pushing transportation costs higher could entice the 'Big Four' coffee roasters – Kraft, Nestlé, Procter & Gamble and Sara Lee - to purchase larger quantities in the short term.

On the other hand, the International Coffee Organisation (ICO) predicts that world coffee production in 2008/2009 will rise by around 3% to 127 million bags weighing 60kg each. Consumption has, meanwhile, grown at an average of 2% per annum over the past five years. If demand continues to grow at its current rate, it would be in line with the ICO's predictions, with supply keeping up with global demand.

Trading on the coffee market

So what is the market likely to look like in the coming months? Whatever your views on the outlook for soft commodities including coffee, there are opportunities available to take advantage of the situation with IG Index.

For example, if you think the price of Coffee Robusta will go up in the coming months because of decreased supply, you could back your theory by placing an 'up' bet on the instrument in PureDeal.

On the other hand, if you believe that prices will fall, you may wish to go short on the market.

Take a more in-depth view on coffee with our specialist report from IG Index analyst Anthony Grech, available to all clients. Apply for an account and get set up in minutes.

[1] Source: Hemscott website (10 June 2008)

The above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.

Updated: 26 June 2008