Coffee futures on Nymex have surged furiously since the start of June, moving up from as low as $1.33 to as high as $1.62, a gain of 21.8%. If coffee futures go up, can coffee shares lag behind?
Starbucks (SBUX) share price is up from $25.7 on June 1st to $27.98 yesterday, even after losing $0.01 yesterday. Caribou Coffee Company, Inc. (CBOU) share price is up from $10 on June 1st to $10.3. Green Mountain Coffee Roasters Inc. (GMCR) share price is up from $23.54 on June 1st to $27.27. Peet's Coffee & Tea, Inc. (PEET) share price is up from $38.52 on June 1st to $40.84. Coffee Holding Co., Inc. (JVA) share price is up from $4.87 on June 1st to $5.5. So, the optimism is wide spread. However, Farmer Brothers Co. (FARM) share price is down from $16.78 on June 1st to $16.42.
The recent coffee futures rise has taken many people by surprise. The expectation was that the large Brazilian coffee harvest would cause coffee prices on the New York International Continental Exchange (ICE) to fall. However, the coffee market has shown impressive resilience to the macro meltdown of commodity prices. Cold weather scares in Brazil, the strengthening cash market for Washed Arabica coffee, a buoyant Robusta coffee market and a tighter market structure have pushed prices up to their highest levels since December 2009. To some extent the strong coffee price is due to a production risk premium on account of cold weather in Brazil - the world's largest coffee producer. But the major reason behind the price resilience, in my opinion, has more to do with ongoing tight market conditions for Washed Arabica coffee. The price of Arabica coffee surged to the highest in more than two years due to low supplies. ICE July Arabica coffee traded yesterday at $1.6225 a pound, up 21% in six trading days. Colombia, the largest producer of Arabica coffee, saw its coffee production fall by 24% in the past two years, according to the International Coffee Organization. Tight physical coffee supply has pushed Colombian prices to a 60-70 cent premium over New York prices. And there are some interesting dynamics at work in the futures market, making for a bullish longer-term outlook.