The Truth About Your Cup Of Joe
Roni Stern | May 13, 2015 03:25AM ET
"For a writer, it's more essential than food", those were the words of Joan Frank when asked about Coffee. It is one of the most traded commodities in the market and one of the most consumed products worldwide.
At the price of $ 134.25 for 100 pounds, we can find coffee being traded on a wide range of prices and highly depended on both the political occurrences in the world and agricultural factors such as the drought that struck Brazil during 2014.
One way or another, the percentage of people drinking coffee every day is constantly increasing. While countries such as China are starting to adjust themselves with coffee drinking habits, in Brazil the climate change threatens their coffee production, there is only one thing we can expect, that is -- an increase of prices.
A Short Reminder Of Coffee's Trading History
As some might remember, up until 2005 coffee prices were never really high, and didn't even cross the price of $ 100 per 100 pounds, but during that year the price increase was a direct result due to the increase in coffee consumption worldwide, and the crop, which was lower by 10% -20% in previous years record crop. Prices continued to rise in the years 2006 to 2009 and increased sharply in the second half of 2010 and during 2011 for fear of poor harvests in several of the countries.
In the following years, with better harvests, price went back to average price at around $ 120-130 / 100 pounds. Just when everyone thought the price will stay at those levels it climbed back to above 200 at 2014, when what seemed to be the worst drought in history hit Brazil and forced the prices to climb back up.
So what is different now from before, and what exactly are we looking at?
Factor #1 for price change: According to a study from an international group of scientists, Global coffee supply losses may be severe and a quarter of Brazil's production is under threat unless farmers limit the effects of climate change, since the climate change threatens Brazil's coffee production, seems like growers may have to seek higher land
Factor #2 for price change: China is only starting to 'discover' coffee. The habit of drinking at least one cup of Joe a day is only in diapers for the number one consumer in the world. And apparently it will not stop at cup a day. Which means, they are going to NEED their coffee.
Long story short, there is no doubt that during the second half of 2015, coffee prices are likely to spike again.
The only question left is where to?
As you can see on the following chart you can find the levels where the coffee price previously stall, which for me signifies my price targets.
- 1st target -- $ 142 on the shorter term and 2nd target -- $ 160 on the longer term.
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