From the August 01, 2010 issue of Futures Magazine • Subscribe!

Will coffee jolt continue?

Talk about a caffeine jolt. Coffee prices soared 25% in June due to a temporary supply shortage of Arabica beans before dropping back a bit in July. Analysts say that conditions should return back to normal, however, and expect prices to head down through mid-August.

Spencer Patton, chief investment officer, Steel Vine Investments, says that a disappointing Colombian crop contributed to the supply shortage. “Brazil’s harvest is alleviating the supply conditions slowly but surely, but the Brazilian harvest doesn’t produce as high quality beans, so the supply shortage [was] reflected in a spike of the price. Many large traders were short [in the market], so [there was] a combination between a little bit of a supply shortage as well as a lot of short covering.”

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Shawn Hackett, president, Hackett Financial Advisors, expects coffee to be stuck in a sideways pattern through the end of August. “We’re still harvesting the Brazilian crop. Half the crop is to come, so this continued harvest supply should keep markets well in check. The market is tight enough and the fundamentals are bullish enough that we’re not going to get a lot of pressure on the market beyond $1.50 to $1.55 [per lb.].”

Patton says by mid-August, more of the Brazilian harvest will be hitting the market, so the supply condition is going to be alleviated, pushing prices down to below $1.50.

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