STILL YAWNING…UNLESS YOU ARE A FARMER (Coffee#4)

Above we can see the composite price for coffee done by the International Coffee Organization. What’s visible here is that the price of coffee is on a downward curve.

If we look at the last graph we did in our bulletin, back in November, we had a decrease in price going from 114 to 106 US cents/lb. During December it continued its bearish run until it stabilized at around 100. Then, in January, it stayed stable during the whole month around 99 and 103. Now, as we saw earlier, it’s continuing its bearish run after a brief halt in January.

Brazilian Real:

Price movement in general:

Generally, if anyone wants to know why the coffee price is either bearish or bullish, they should just look at the Brazilian currency and see which way it is going. They will often find both going in opposite directions. Both are extremely correlated. If one is up, the other is down and vice versa.

Following the last bulletin, we can see the same behaviour of the price which keeps in decline. For example: Arabica – drop to 1.10 USD per pound which is well below 1.2 USD from the required level to make a profit for Latin American farmers.

This decrease is continuing mainly because of the weakening of the Brazilian Real against the US Dollar and the over supply of coffee beans especially from Brazil.

As we mentioned in the last bulletin, the main reason for the weakening of the Brazilian Real is the new Brazilian President Bolsonaro’s policies that have not been implemented yet which create uncertainty, and this creates economical and political unstability (for example for investors).

The over production of Brazil is due to the historical trend of coffee production following a cycle.

Forward curves: US coffee C futures (Arabica):

Price in cents and hundredths of a cent up to two decimal places USD

Robusta Coffee Futures

In terms of the forward curves, we now already know that it is generally always in carry. There is constant supply from all around the southern part of the globe thus keeping the curve in this position.

What we can notice however is that the Arabica price has stayed the same to the graph in our last bulletin, but the Robusta has decreased slightly

Potential usage of Blockchain technology in the future in the Coffee Commodity in order to boost business:

According to an article in Forbes, The Moyee Coffee brand (Ethiopia) is using blockchain to differentiate between 350 farmers in order to provide buyers with full transparency in the supply chain and full price discovery.
This transparency allows the buyer (the roasting companies) to keep the price balanced and not go too low in order to keep the farmers motivation to produce the coffee beans.
In the Moyee case it allowed the increase the price by 20% above market rate.
The article also states that the UN food and agriculture organization believe that the blockchain has huge potential to solve challenges of small coffee holders regarding uncertainty (for example: fluctuation in supply) and trust among market players.