Sudden rise in coffee supply triggers worst start for the commodity in 27 years

Coffee’s stunning fourth-quarter rally seems to be attracting huge supplies to the market, triggering a sharp swerve lower in the commodity’s wild ride. The number of bags pending grading by ICE Futures US – that is, coffee awaiting assessment from the exchange to be included in its warehouse inventories – has surged to the highest since September 2018. The flood of supply comes after prices climbed 28 per cent last quarter. The jump in pending-grading bags signals that exchange-certified stockpiles are likely to rise. That explains why coffee prices have dropped from their lofty highs. Futures in New York are down about 8 per cent in January, the worst start to a year since 1993. Total coffee bags pending grading by the exchange unexpectedly surged to 178,113 as of January 8, exchange data show. That’s the highest level since September 2018 and compares with just 6,693 bags on December 27. The figures can include both fresh gradings and re-gradings. A bag weighs 60 kilograms. The potential for rising stockpiles would mark a big reversal after ICE inventories fell in 18 of the previous 20 weeks. The supply draw had helped to underpin the price rally. “It removes one of the bullish factors which was supporting the coffee rally,” Rodrigo Costa, US-based coffee director at Comexim, said. Still, while the rise in pending-grading bags is bearish, robust cash markets for Central American coffee indicate there is good demand, and inventories could continue to deplete, according to Marex Spectron. The “firm differential market for Central American coffee still tells us the certified stocks should be attractive and could ultimately continue to draw over the coming months",” said Kiki Van Der Gucht, a broker at Marex Spectron in London.

Sudden rise in coffee supply triggers worst start for the commodity in 27 years

The potential for rising stockpiles marks a big reversal after ICE inventories fell recently