Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Coffee, one of the world’s most traded commodities, surges to a 47-year high
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Drought and high temperatures, combined with a global reliance on supplies from relatively few regions or countries, are the key drivers behind this year’s top-performing commodities.
- While the cocoa surge earlier this year garnered significant attention, strong gains have also been seen in orange juice and now also coffee which hit a 47 year on Wednesday
- A challenging growing season in Vietnam, the top producer of Robusta beans, has now moved to Brazil where adverse weather has raised serious concerns about the 2025 Arabica crop
Drought and high temperatures, combined with a global reliance on supplies from relatively few regions or countries, are the key drivers behind this year’s top-performing commodities. While the cocoa surge earlier this year garnered significant attention, strong gains have also been seen in orange juice and, more recently, coffee.
Cocoa prices have soared 240% this year due to tightening supplies caused by lower production in West Africa. Similarly, orange juice futures in New York have risen 88%, supported by declining production amid weather concerns in Florida and Brazil, the latter being the world’s top exporter. To this list, we can now add coffee, which has experienced a two-fold rally in recent months. In September, robusta coffee, known for its strong, bitter flavour, reached a record high on the ICE-LIFFE futures exchange in London, and currently trades up 86% on the year. This followed a challenging growing season in Vietnam, the top producer, where dryness during the growing period was followed by heavy rains at harvest time.
This week, arabica coffee futures traded in New York and prized for its smoother taste and used in espressos and high-quality products, surged to a 47-year high and is currently up 72% year-to-date. Similar to orange juice, concerns over the 2025 crop in Brazil are the main driver. The country experienced its worst drought in 70 years during August and September, followed by heavy rains in October, raising fears that the flowering crop could fail. Back in June, the USDA forecasted 2024/25 coffee production at 69.9 million (60 kg) bags, comprising 48.2 million bags of arabica and 21.7 million of robusta. However, their latest update this month reduced those figures to 45.4 million and 21 million bags, respectively, with further downgrades expected when Brazil’s National Supply Company (CONAB) releases its next update.
Coffee is one of the world’s most traded commodities and is often considered the second-most traded by volume, after crude oil. It is a staple beverage for billions of people globally, with demand further boosted in recent years by growing consumption in China. However, production has struggled to meet this rising demand. Like cocoa, coffee is grown in a relatively narrow tropical band, with key producers including Brazil, Vietnam, Colombia, and Ethiopia. This concentration makes it particularly vulnerable to adverse weather conditions, especially in Brazil and Vietnam, which together account for approximately 56% of global production.
The rally this week has been driven by several factors, the most important being the risk to supply triggering panic buying from commercial buyers worried about shortages, while front loading of sales to the US ahead of potential tariffs may also play a part. Finally, the looming introduction of the European Union’s contentious deforestation regulation (EUDR) is injecting an additional layer of complexity into the market. The lack of clarity around the official start date for these rules and their eventual impact on supply routes to Europe has left traders and importers grappling with unanswered question.
Recent commodity articles:
27 Nov 2024: Podcast: Will gold enjoy a Santa rally for the eight year in a row?
25 Nov 2024: COT Report: USD long jumps; Mixed week in commodities
22 Nov 2024: Commodity weekly: Strongest performance since April
19 Nov 2024: Gold and silver rise on Russia-US tensions
18 Nov 2024: COT: Limited dollar demand despite strength; Acclerated metals selling
11 Nov 2024: COT: Speculators bought energy and grains, sold gold ahead of elections
8 Nov 2024: Commodity weekly: Mixed response to Trump 2.0
6 Nov 2024: Podcast: US election and the market reactions, including commodities
6 Nov 2024: Trump and Republican victories spark commodity decline
4 Nov 2024: COT: Speculators flock to dollars, exit commodities ahead of US election
1 Nov 2024: Commodity weekly: Some weakness seen ahead of critical week
31 Oct 2024: Crude prices seek stability ahead of key support and US elections
30 Oct 2024: Will the US election result spark a gold correction?
29 Oct 2024: Podcast: Electrification's surge impact on commodities and equities
28 Oct 2024: COT: Crude length cut; silver and platinum see strong demand
25 Oct 2024: Commodity weekly: Market jitters on the rise ahead of U.S. elections
23 Oct 2024: Crude prices stalled by two-sided market risks
22 Oct 2024: Gold and silver's remarkable run in four charts
22 Oct 2024: Podcast: The Trump trade enters the metal market
21 Oct 2024: COT: Dollar shorts squeezed; Shift in commodity exposure from energy to metals
18 Oct 2024: Commodity weekly: Gold's record-breaking run continues
17 Oct 2024: Copper prices decline amid doubts about China stimulus impact
16 Oct 2024: How high can gold and silver rally?
8 Oct 2024: Podcast: Navigating market shifts: Fed rate cuts, commodities and rising food prices
8 Oct 2024: Video: These commodities might be impacted by the US election
7 Oct 2024: Crude oil surge caps strong four-week rally for commodities
7 Oct 2024: COT: Broad buying momentum persists, led by Brent, copper and grains
2 Oct 2024: Q3 2024 Commodity Outlook: Gold and silver continue to shine bright
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