Since early September coffee prices have rallied from $1.15 per pound to nearly $1.40. “If they don’t get decent rain, it will be $1.50 or more, easy,” says John P. Casey, president of Anderson & Co. The other fundamental driving the market is currency conversion and the weakness in the Brazilian reale and the U.S. dollar, which has kept coffee cheap for European buyers, he says. From a technical standpoint, he says that while coffee is overbought, the market is strong. During November, he expects coffee to trade between $1.50 and $1.75, though healthy rains could push coffee to the $1.20 to $1.25 area. “That’s where the speculation is in the market,” he says.
Weather will be the determining factor, says Boyd Cruel, senior softs analyst for Alaron Futures and Options. This year’s expected yield is already down as much as 10% from a lack of rain, he says. And with the crop entering the critical flowering stage in mid-to-late October, there is at least an 18¢ weather premium build into these prices. If the rain comes, he says coffee will trade back down to $1.20 to $1.25; otherwise it could surpass the December 2006 high of $1.41 and touch $1.55.