Coffee prices’ rally is likely to continue into the new year

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Dec 30, 2020
  • Coffee prices are on an upward momentum that is likely to continue into 2021.
  • Unfavorable weather in Vietnam and Brazil have heightened concerns over coffee supply.
  • Investors are hopeful that the pre-pandemic norm will return hence increasing the demand for coffee.

On Wednesday, coffee prices were up by 0.04% to trade at $125.45. The uptrend is a reaction to the unfavourable weather conditions in Brazil and Vietnam. Subsequently, there are concerns over the commodity’s supply. As the world prepares to usher in a new year, investors are optimistic that the pre-pandemic norm will return. The norm would include the reopening of coffee shops and other establishments, an aspect that would increase the demand for coffee.

coffee prices

Weather patterns heighten concerns over coffee supply

Weather is one of the factors behind the rallying of coffee prices. Brazil and Vietnam are the top two producers of coffee in the world. Notably, they have both experienced unfavourable weather conditions.

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On the one hand, Vietnam has been receiving heavy rainfall. It is the harvesting season in the country; a period that requires substantial sunshine for the ripening of the coffee beans. Delayed harvesting has heightened concerns over the supply of the Robusta variety. Vietnam is the largest exporter of Robusta coffee beans; accounting for about 40% of the global production. Besides, some traders are buying the produce to reserve stocks as they anticipate coffee prices to rise further in 2021.

In the case of Brazil, the lower-than-normal precipitation has impacted coffee tree. While the southern region experienced some rainfall over the Christmas weekend, meteorologists expect the area to continue recording higher-than normal temperatures and lower-than usual moisture.

Weather watchers whose interest is to invest in commodities are also concerned about the ongoing La Nina. Typically, this weather phenomenon leads to the delay of the Brazilian monsoon. The result is suboptimal soil moisture in key crop-growing areas. However, by this period, the monsoon usually has recovered. This year, the situation is different as there is still low monsoon wetness. As we enter into 2021, coffee’s price action will depend on the suppression of La Nina in the coming month.  

Coffee prices ride on the vaccine-led optimism

As we prepare to usher in the new year, investors are optimistic that the world will soon overpower COVID-19. For instance, on 23rd December, Pfizer indicated that it will supply an additional 100 million coronavirus vaccine doses to the US. The drug manufacturer is set to deliver 200 million doses of the vaccine. At the same time, AstraZeneca plc has expressed confidence in its vaccine’s effectiveness against the new coronavirus strain.

On 30th December, the EU began its vaccine rollout. The inoculation targets over 450 million individuals across the region. These vaccine updates have fuelled optimism that pre-pandemic norm is likely to return in the coming year. Part of the norm would be the consumption of the coffee beverage outside the home setup. The coffee prices’ rally is the result of investors banking on the reopening of offices, airlines, restaurants, coffee shops, and similar establishments.    

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