A futures contract is an agreement to buy or sell an asset — in this case, coffee — for a set price at a particular point in the future. It indicates what people expect the future price of coffee to be.
The recent move higher comes after a volatile few months for coffee prices, which hit a 2020 low of around 97 cents per pound on February 5, as volatile stock markets reflected widespread panic about the coronavirus. But prices have since bounced back, and on March 25, coffee futures hit $1.29, surging 30% from the February low point.
Consumer demand for coffee has not faltered, despite the coronavirus pandemic, which has helped to lift the price of the commodity, Maximillian Copestake and Steve Pollard from broker Marex Spectron, told CNBC Wednesday. “For many other commodities, like metals or oil, there’s definitely been a big reduction in demand — that’s not the case with coffee,” Copestake, executive director of European coffee sales, said on a call. “There’s just been a switch from one type of consumption to another — from out-of-home to in-home consumption.” Consumers stockpiling groceries had also helped to drive a net increase in demand and, subsequently, in coffee roasting, according Copestake and coffee analyst Pollard.
On the supply side, lockdowns were impacting the process of getting coffee to consumers, Copestake said, but the product was still being delivered eventually. Shipping routes had also been disrupted ever since the coronavirus outbreak led to lockdowns in China, where the outbreak began at the end of 2019. And Copestake and Pollard warned that transportation issues may become more of a problem in the long run.
According to Copestake and Pollard, it was “very much open to debate” what could happen to coffee prices once the coronavirus crisis had passed and lockdowns were lifted. “Whether all the consumption that’s lost from people not going to Starbucks or not going out for a meal and having a coffee afterwards will be compensated by an equivalent increase in at-home consumption, we don’t know,” they said. “And at some point, consumers will start depleting their own stocks and not going out to buy in the supermarket. We’re thinking it will likely be at some point in the 2020/2021 year – so that extra demand we’re seeing at the moment will probably drop back out of the market next year.”
Coffee prices rally as coronavirus lockdowns see drinkers caffeinate at home, CNBC, Apr 16