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Coffee Soars to Best Levels in Three Years on Tightening Supplies

Summary:
Coffee futures are trading at the best levels in nearly three years to kick off the trading week. Coffee prices have been rebounding over the last two months on reports that supplies might be tightening amid a rise in farmers defaulting on sales that were made when prices were low. Is the inventory deficit really going to be immense?  March coffee futures rose %excerpt%.0185, or 1.33%, to .408 per pound at 19:12 GMT on Monday on the US ICE Futures exchange. Coffee prices have been on a tear this year, advancing nearly 40% year-to-date. What is extraordinary about the agricultural commodity’s performance was its late-year surge of 35%.  Coffee’s impressive rally is being caused by fears over farmers defaulting on sales made at lower prices.  Since October of last year, coffee had been trading

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Coffee futures are trading at the best levels in nearly three years to kick off the trading week. Coffee prices have been rebounding over the last two months on reports that supplies might be tightening amid a rise in farmers defaulting on sales that were made when prices were low. Is the inventory deficit really going to be immense? 

March coffee futures rose $0.0185, or 1.33%, to $1.408 per pound at 19:12 GMT on Monday on the US ICE Futures exchange. Coffee prices have been on a tear this year, advancing nearly 40% year-to-date. What is extraordinary about the agricultural commodity’s performance was its late-year surge of 35%. 

Coffee’s impressive rally is being caused by fears over farmers defaulting on sales made at lower prices.  Since October of last year, coffee had been trading around a buck because of soaring supply levels. South American growers had been producing coffee at a loss, which has triggered concerns that these farmers will choose not to honor sales agreed upon prior to the recent rally. 

Last week, it was reported that the International Coffee Organization (ICO) warned that coffee consumption will be greater than what farmers will be able to produce. Analysts warned that this might lead to a deficit of approximately 502,000 bags in the 2019–2020 coffee year. 

In addition to these worries, coffee has spiked due to the recent recovery in the Brazilian real. Up until this month, the real had been the worst-performing currency among developing markets. As a result, Brazil, which is one of the world’s largest producers, does not seem as attractive anymore.  

But will this rally be short-lived? The technical measurements suggest that coffee has climbed too fast. Using the 14-day relative strength index, coffee has topped 80 – anything above 70 indicates the commodity has been overbought. 

Meanwhile, hedge funds and money managers have slashed their bearish bets on coffee and becoming more bullish on the world’s favorite beverage.  

In other agriculture markets, February corn futures rose $0.0675, or 1.77%, to $3.8775 a pound. February wheat futures soared $0.1675, or 3.15%, to $5.4925 per bushel. February soybean futures tacked on $0.1325, or 1.46%, to $9.2075 a bushel. 

If you have any questions and comments on the commodities today, use the form below to reply. 


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Andrew Moran
I am a full-time professional writer. Prior to my self-employment, I worked as a reporter for Digital Journal covering the politics beat and The Toronto Times reporting on the city’s entertainment scene. I currently write mostly about business, marketing and finance

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