Coffee with the (speculative) bubble ...

The price of commodities these days is running relentlessly toward unprecedented rises, and so coffee is not spared from these kinds of rises either. As of today a pound of green coffee is quoted at around $2.80, which is between 90 percent (for Robusta) and 100 percent (Arabica) more than a year ago. We are therefore talking about a price for 450 grams of coffee (1 pound = 453.59 grams), which after roasting becomes about 385 grams of coffee, for about fifty cups ... to say that the situation is worrying is to try to see the positive side even in this conjuncture.

But let's see the causes by studying the past: in 2001, due to a devastating frost over Brazil, the price of green coffee had risen as high as $3 a pound. But in those years such a production deficit pushed other countries to enter this market (e.g., Vietnam, which has since become one of the world's largest producers), bringing the price of green coffee to 40 cents a pound because of the production surplus created, so much so that farmers were starved because of the extremely low price (and let's remember that there are 25 million families in the South of the World who live off coffee cultivation).

But this is where finance comes in with futures where, the various crops destroyed by floods or droughts are nothing but a pre-condition for triggering speculation. In fact, right now, the futures coffee stock market is equivalent to about ten times the physical market for the same product...but what does this mean? It means that a quantity of coffee that will be produced in the future many times more than the current production capacity is traded on the market, and so, as the coffee of the future (which exists only on paper for now) changes hands, the price tends to be volatile and thus to soar.

So what, is the speculation transient or cyclical, i.e., are commodity prices likely to remain other? Good question, every economist has his or her say on market trends and, usually, the one among many who shoots his or her piece and gets it wins the Nobel ...