Coffee Futures Prices Churn Higher on Supply Concerns

October 18, 2016 6:57AM CDT

Coffee futures prices are floating higher on brewing demand and supply concerns in major coffee-producing countries. On Friday, the International Coffee Organization cited potential setbacks to forthcoming harvests in Colombia, Indonesia and Vietnam, which are three of the world's four biggest producing countries. Drought conditions in Vietnam, the largest robusta-bean producer, have brought the nation’s crop lower by 11 percent this year, according to reports.

The International Coffee Organization estimated a supply deficit of 3.3 million bags for the 2015/16 crop year that has just ended, making it the second consecutive year in which supply has lagged demand.

The December contract in coffee futures rose 1.30 percent to 159.15 in Tuesday’s commodities futures trading session after earlier hitting a new two-year high in overnight trading. In the rest of the softs sector of commodities futures markets, prices were mixed. Cocoa futures prices for December were up .30 percent at 2,698, while sugar futures prices dropped .86 percent to 22.97. Rounding out the breakfast trifecta of softs commodities futures contract, orange juice futures for November fell .29 percent to 188.15.

Analysts say demand for coffee is high at present, with domestic Brazil demand boosted in part from roasters looking for low-quality Arabica beans to replace the lost production of Robusta in blends, which is adding a prolonged lift to coffee futures prices. Lower grade coffees from Vietnam and Brazil are widely available. Top grower Brazil, meanwhile, is expected in 2017-18 to record an "off" year in its cycle of higher and lower production years.

In addition, dry weather has threatened blossoming in both arabica and robusta-growing regions.

Back in the U.S., the economic calendar in the U.S. is relatively light for commodities futures markets on Tuesday. The Consumer Price Index (CPI) increased 0.3 percent in September after rising 0.2 percent in August, according to the U.S. Department of Labor. Analysts cite the higher cost of oil for the jump in the CPI. In the 12 months through September, the CPI accelerated 1.5 percent, the biggest year-on-year increase since October 2014. Economists had forecast the CPI rising 0.3 percent last month.

On Wednesday, among reports relevant to commodities futures markets, Housing Starts and Building Permits for September are due for release. On Thursday, the October Philadelphia Fed index is due, as well as Existing Home Sales and Leading Indicators reports for September.

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