Stock of the week: Coffee price hits 10-year high
Supply chain bottlenecks are driving the price of coffee to all-time highs. We look at the popular commodity and share valuable trading advice.
When you think of commodities, gold and oil take the limelight. However, it’s easy to forget that food staples such as wheat, beef, and soy are also incredibly popular to trade. One commodity that has been soaring in value above them all over the past year is coffee.
We look at this popular bean and why the price of a good cup of coffee could drastically increase by 2022.
Earlier in December, we reported that coffee was soaring in value and that experts predicted it will continue to rise. This was proven true when on December 8 as the valuable bean hit a ten-year high; Futures for higher quality arabica beans hit $2.50 a pound, nearly double the price at the start of 2021 (1.1%) and it’s up 99% YTD (year to date).
That’s astonishing growth considering the impact the ongoing pandemic has had on the restaurant and retail sector.
At the time of publishing, coffee has posted the biggest price increase of any commodity in 2021, even more than the epic comeback of the oil industry and significantly more than the struggling gold sector.
CFD trading – easiest commodity to trade
Coffee futures: December 6 – 10
Coffee futures: YTD
What’s driving the price?
The global coffee industry has been hard hit by pandemic-related disruptions; container shortages, port congestion, extreme weather, and inflation are driving coffee prices high.
The coffee market moved from a surplus to a deficit of 5.2 million bags in 2021, yet demand continues to increase. The bottleneck can fuel a cycle of panic buying though a minor sell-off has begun.
Food prices are at a 10-year high, according to the UN’s Food and Agriculture Organization. With inflation hitting every sector, fueled by huge consumer demand and ongoing supply constraints, and extreme weather, this trend won’t end soon. The risk is particularly high for the energy and food sectors; it’s not as simple as planting new cocoa trees to meet current challenges. This will take some time to remedy and during this period consumers may feel the brunt of rising prices.
All eyes on Brazil
Commodity traders are closely eyeing developments in Brazil. The Coffee Exporters Council of Brazil, the world’s largest coffee producer, and exporter, reports that traders are struggling to secure containers and vessels. This has led to frequent delays; coffee export volumes in October had dropped by 24% compared to last year.
The rise in bean prices has curiously led to supply hoarding by farmers, severely limiting exports and driving prices skywards. The US Department of Agriculture also reports that cases of defaulting on coffee contracts by farmers are increasing further worsening an already tenuous situation.
Here’s how to take advantage of the coffee price:
While there are multiple ways to access commodities through the financial markets, the most accessible way is through CFDs (Contracts for difference).
CFD trading allows you to speculate on the difference between the current going rate and the price the asset reached when you closed your trade.
This means you can speculate the price of coffee will go up and if it does, you’ll profit. Similarly, you can also speculate that the price of coffee will decline and still profit if you are correct in your assessment.
Therefore, CFDs can provide you with exposure to a diverse range of financial markets without having to own the underlying asset. Even more beneficial is that you can speculate and profit in both trending and falling markets.
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Prices are accurate at the time of publishing.