Coffee prices crash, but could pick up

For a while last year, many people were riding the coffee wave.

#The absence of rain in certain key growing areas had starved supply and prices began to skyrocket as traders began to pay more and more for deliveries in order to get the stock that they and their employers needed.

Things escalated so much that Starbucks, the most prominent coffee chain in the world, took a step back and opted to go through their reserves rather than jump into a seller’s market.

But thanks to better climatic conditions – in Brazil especially – those sky-high prices have started to plummet, leaving some industry insiders to suggest that coffee could be 2015’s worst performing crop – from a financial point of view.

“As the stress of drought recedes, it looks like the harvest[s] could be better,” explains Frances Hudson about a sudden price crash. According to the Bloomberg Commodity Index, coffee’s value has dropped, on average, 17% since December last year.

Last year Brazil was in the midst of drought, but rains this year has seen harvest estimations leap upwards. With that surplus expected to enter the market soon, prices have naturally fallen. Not even an estimated increase of global demand – estimated by some to be at around 3% – can turn the downward slide of coffee’s value.

But despite this rather bleak outlook, there is the possibility that worsening weather conditions could provide some relief – though, admittedly, this is always a double edged sword when it comes to the financial situation of the farmers and workers on the front line.

“Coffee is either at or near [its] bottom,” predicts Lara Magnusen, an investment portfolio manager based in California. “There’s just [a] universally strong coffee demand that’s not going away soon. When you have that strong demand coupled with the [predicted] weather, that’s not so great.You’re going to have supply disruptions.”

The volatility of coffee is on show once again.