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Soft Matters: This Week's Cash Crop Updates

PART:
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Soft Matters: This Week's Cash Crop Updates PART 1 OF 4

What Happened to Coffee Last Week

Trading coffee

Coffee commodity futures trading takes place primarily in two varieties, Coffee Arabica and Coffee Robusta. Arabica futures are traded in the US on the ICE (Intercontinental Exchange), while Robusta futures are traded in London on the LIFFE (London International Financial Futures and Options Exchange). Robusta has less flavor and is of lower quality than Arabica.

What Happened to Coffee Last Week

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Arabica hits a fresh low

Arabica front-month futures hit a fresh low last week (ended June 16), falling to $1.24 per pound from $1.26 per pound one week previously (ended June 9). Arabica prices have been in a downward trend for the past 12 months.

The Arabica market is now in contango, with the futures curve sloping steeply upward. July 2018 futures were trading at $1.37 per pound, while July 2019 futures were trading at $1.46 per pound last week (ended June 16).

Falling coffee prices are highly favorable for coffee retailers (JO) like Starbucks (SBUX), Dunkin’ Brands (DNKN), McDonald’s (MCD), and Green Mountain Coffee (GMCR).

Robusta futures

Front-month Robusta futures prices rose to $2,106 per metric ton last week (ended June 16) from $1,999 the previous week (ended June 9). One year ago, Robusta coffee prices were trading at $1,622 per metric ton.

The Robusta market appears to be in backwardation, with the forward curve sloping broadly downward. July 2018 futures were trading at $2,046 per metric ton, while January 2019 futures were trading at $2,072 per metric ton.

Series overview

In this series, we’re discussing the price movements of soft commodity cash crops, which include coffee, sugar, cocoa, cotton, and orange juice. These commodities are grown, as opposed to hard commodities like copper and gold, which are mined.

The soft commodities listed above are also referred to as cash crops because they are primarily traded for income, whereas corn, soybeans, wheat, and rice are traded for sustenance.

Now let’s discuss what happened with sugar last week.

 

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