Coffee Prices Percolate

NEW YORKCold weather scares in Brazil, the strengthening cash market for Washed Arabica coffee, a buoyant Robusta coffee market and a tighter market structure have pushed coffee prices up to their highest levels since December 2009, according to a new Rabobank research report.

According to Luke Chandler of Rabobanks Agri Commodity Markets Research department, the coffee market has shown impressive resilience to the macro  meltdown of commodity prices. The recent rises have taken many people by surprise. The expectation was that the large Brazilian coffee harvest would cause coffee prices on the New York  International Continental Exchange (ICE) to fall," he said.

Many experts believe that the strong coffee price is due to a production risk premium on account of cold weather in Brazil,  the worlds largest coffee producer, added Rabobank analyst Doug Whitehead. But in our opinion the price resilience has more to do with ongoing tight market conditions for Washed Arabica coffee. And there are some interesting dynamics at work in the futures market, making for a bullish longer-term outlook.