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Arabica coffee surprise rally keeps traders guessing on 2020 outlook

Coffee’s stunning rally in late 2019 took many traders and analysts by surprise, creating tension over where prices go from here.

Arabica beans have surged 28 per cent since the end of September, on pace for the best quarterly performance since 2014 and the biggest gain among major commodities in the last three months. The move came after futures in May tumbled to the lowest in 13 years, driving some farmers out of the industry.

Prices recovered after adverse weather threatened production in Brazil, the world’s top grower and exporter. Analysts began predicting the market would shift into a supply deficit, helping to drive the rebound. But the size of the gains were surprising as a measure of volatility surged to the highest in more than four years. That’s lending a cautious tone to the outlook for early 2020.

“The market ran up too much, too fast, and now we’re seeing a healthy pullback,” said Josh Graves, a senior market strategist for RJO Futures in Chicago. “In the short term, high volatility is here to stay.”

Arabica-coffee futures traded in New York are up 27 per cent in 2019. The commodity rose to a peak of $1.4245 a pound on Dec. 17, the highest in two years, but has since fallen back about 9 per cent to trade at $1.2965 at 12:50 p.m. on Tuesday. Brazil’s end-of-season inventories are set to drop to the lowest in data going back to 1962, the U.S. Department of Agriculture estimates.

Rabobank International sees a world supply shortfall of 3.5 million bags in the 2019-2020 season, while Citigroup Inc. predicts 4.7 million and sees a 2020-2021 deficit of 1.3 million bags. A bag weighs 60 kilograms, or 132 pounds.

Source: Economic Times