Why Coffee Prices Have Gone Parabolic

Coffee prices have seen a parabolic run-up in recent weeks as unprecedented hot and dry weather in Brazil has sucked the life out of what was expected to have been a record crop.

Prices are at $1.75 per pound, up 3% today. According to Reuters, last week's 20% surge was the largest one-week rally since December 1999.

January was the hottest month on record for parts of Brazil, and the drought was said to be the worst in 50 years. One estimate said 30% of the coffee crop may have been lost. Brazil produces 40% of the world's coffee grounds.

Last week, Goldman Sachs chief commodities analyst Jeff Currie had raised raised his 3- to 12-month Arabica coffee price forecast from $1.20/lb to $1.30/lb warning he saw "risks to the updated forecast as skewed to the upside."

But Currie noted that there were reasons why prices wouldn't have to go to the stratosphere.

"Our forecast remains below the current forward curve for now as (1) high stock levels after several years of surpluses will help cushion this production shortfall and (2) the current rally has likely been exacerbated by large net short speculative positioning heading into this weather event," he said.

In any case here's the chart from FinViz:

FinViz