Market Overview: Coffee (KC)

Coffee is classified into two types - arabica and robusta. Arabica coffees, which make up the bulk of world production, are grown mainly in the tropical highlands of the Western Hemisphere, are more flavorful and are used to produce higher quality coffee. Robusta coffees are produced largely in the low, hot areas of Africa and Asia. Their flavors are less mild than the arabica coffees and are therefore used in lesser quality coffees (such as instant). Its important to distinguish between the two coffee types since "Arabica" coffee is traded at the New York Coffee, Sugar and Cocoa Exchange a sub division of the New York Board of Trade (NYBT) while "Robusta" coffee is traded at the London Exchange. Our focus will center on Arabica coffee.

The United States is the largest consumer of coffee. Coffee is certainly a weather market as it is easily influenced by temperature and drought. Arabica coffee grown in Latin America (Southern Hemisphere) may be damaged by winter frost in June and July. Coffee may also be influenced by drought during the growing season in late September and October.

Seasonal Overview:

The frost season in Brazil occurs during the May through early-August period. In anticipation of this frost, prices tend to rise from January into June. This seasonal tendency is not very strong, however, because coffee can come from other producing countries, such as Mexico. Still, the potential for a Brazilian frost should be monitored. The other seasonal influence is during the winter, when U.S. coffee consumption tends to rise.

Coffee: (High: May//Low: Jul or Sep-Oct) Weather in the Northern Hemisphere most affects consumption, with weather in the Southern most likely to affect production adversely. Demand strong through European and US cool weather (rally into Sep deliveries). Market prices risk-premium going into Southern Hemisphere freeze season before demand collapses (Jul deliveries) into Northern summer heat.

Chart courtesy of Moore Research Center, Inc.