Coffee yielding higher prices

 Coffee crops reached a record high in 2010/11 (Oct/Sept), however, Arabica prices have risen to levels not seen for more than 30 years.

The high prices have been equated to a robust demand, a lower valued US dollar, specuator activity and expectations of a large deficit next season.

Concerns about supply during the low production year expected in 2011/12 and the risk premium for the crops currently developing will likely keep prices supported. However, turbulent outside markets, a large speculator position, and thin stocks should keep volatility high.  

Given the lack of a significant buffer stock of quality beans and the risks associated with production, we expect prices to move higher into the Northern Hemisphere summer and then ease only moderately as Brazilian supply comes online.

Significant upside risk remains; if production is threatened by weather, prices could take out the records set in the 1970s.

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