I last wrote on the ICE Arabica coffee futures market on October 29, 2024, when I concluded:
Eclipsing the $3 upside target in the Arabica futures could take coffee prices significantly higher as the agricultural commodity depends on Brazilian supplies. Coffee prices at the Q3 $2.7505 per pound higher were triple the level at the May 2019 low, but the potential for even higher highs remains a clear and present danger to coffee drinkers worldwide over the coming months.
Nearby December ICE coffee futures were at $2.5255 per pound on October 28. In November, they screamed above $3 for the fourth time since the 1970s.
A new high for Arabica coffee
The continuous ICE Arabica coffee futures contract rallied to $3.4835 per pound on Tuesday, December 10.
The quarterly continuous contract chart highlights that nearby coffee futures surpassed the 2011, 1997, and 1977 highs, reaching the highest price in history when the futures hit a $3.4835 per pound high.
A pullback in early December to gain bullish steam
Coffee futures for March delivery peaked at $3.3545 on November 29, when they ran out of upside steam.
The daily chart illustrates the early December correction took the March contract below $3 to a $2.9005 low on December 3. Coffee futures came storming back eclipsing the 1977 high on December 10, establishing a new record high.
Poor crops in the leading producing countries
My November Barchart recap on the top performers and underperformers in the commodities asset class highlighted the coffee futures. I wrote:
Coffee is rallying as adverse weather conditions in Brazil, the leading producer and exporter of Arabica beans, have caused rising supply concerns. Moreover, poor growing conditions in Colombia and Honduras have turbocharged the recent rally.
In 2022, the top coffee-producing countries were:
As Brazil is the leading producer and exporter, Colombia is fourth, and Honduras is ninth, the poor growing conditions have caused coffee prices to explode to the highest price in forty-seven years.
If cocoa is a model, watch out on the upside
While coffee prices corrected from the highest level since 1977 in early December, the price action in the cocoa market could provide clues about the future path of Arabica coffee bean prices. Adverse weather conditions and crop diseases in the Ivory Coast and Ghana caused ICE cocoa futures to blow through the 1977 high as a hot knife goes through butter in 2024.
The continuous quarterly ICE cocoa futures chart illustrates that before 2024, the all-time high was in 1977 at $5,104 per ton. In February 2024, cocoa futures rallied above the 1977 high, reaching over $11,700 per ton in April 2024. At above the $10,400 per ton level in December 2024, cocoa futures remain substantially above the 1977 high. If cocoa futures are a model for Arabica coffee futures, much higher prices could be on the horizon in 2025.
No ETFs- Futures are the only choice for risk positions
There are no ETF or ETN products tracking the ICE Arabica coffee bean futures, as the JO ETN stopped trading in June 2023. The only venue for participating in the coffee arena are the futures and futures and futures options offered by the Intercontinental Exchange (ICE). At $3.20 per pound, the total value of an ICE futures contract is $120,000, as each contract represents 37,500 pounds of Arabica coffee beans. The original margin of $8,905 and maintenance margin of $8,096 per contract means a market participant can control $120,000 worth of coffee for around a 7.42% down payment. When the price moves and the margin reflects less than $8,096, the market participant must provide more cash or collateral to maintain the risk position.
Cocoa was the star performer in the soft commodities sector in 2024, but coffee took the bullish baton in November. Coffee only traded over $3 per pound four times and eclipsed the upside target at the 1977 $3.3750 per pound. If coffee futures follow cocoa, we could look down the current price in 2025 instead of up.
