As you may be aware, coffee is bought and sold on the commodities market, similar to the way that the barrels of oil used to make gasoline are. When coffee is traded, it is still in its green (unroasted) form, just like the oil bought in its unprocessed state. This is why the market where coffee is traded is referred to as the Green Coffee Market.
The World Green Coffee Market has been on a roller coaster ride since the beginning of 2014. We saw prices of $1.15 per pound at the beginning of January rise to a high of $2.05 per pound in mid-March and then back off by 15% and then bounce back again this week. The reasons given for this instability range from fear of drought, to rust on the coffee plants, to uncertainty of the overall size of the crop.
While the reasons are many, one that isn’t discussed frequently is the ability of large investment companies, or fund managers, to instill fear in investors.
What consistently happens is that there may well be close to drought conditions or a reduction in the coffee crop in some regions each year, but the markets have a way to sensationalize the concern and scare people into making moves past the true value of the effect. That creates some of the significant volatility in the market each day which is where these fund managers make their money.
We do know that if the green market doesn’t back off very soon, there will be increases in the North American consumer market shortly. How much of that is truly market driven is anybody’s guess.
That creates some of the significant volatility in the market each day, which is where these fund managers make their money.