UNITED STATES (March 4, 2011) - Coffee and Commodity Market Update Report: Coffee sold at the Kenya auction on the Nairobi Coffee Exchange this week dropped due to decreased demand from export destinations.
After garnering $7.9 million last week the auction only earned $7.5 million this week, with prices dropping from $355 to $352 for a fifty kilogram bag of green coffee beans.
Kenya Coffee Volume and Price Decrease
Volume of Kenyan coffee sold also decreased to seventeen thousand fifty kilogram bags of coffee beans this week from the eighteen thousand bags of the previous week and this is projected to decline again next week to around ten thousand bags once the auction begins taking place fortnightly.
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Coffee Prices Drop in Kenya While Other Commodity Prices Hit New Highs continued:
The high worldwide prices for coffee are bringing great benefits to Kenya and making up for lower coffee production. Meanwhile the global price of coffee reached a multi-year high with no large new supply sources projected to halt the price increases.
Surge in Prices for Soft Commodity Markets Including Coffee
Soft commodity markets surged this week due to higher oil prices as well as a United Nations warning about the potential of another food-price spike. The Dow Jones/UBS Commodities Index reaching the highest intraday level in about three years.
There was also a report issued by the United Nations Food and Agricultural Organization this week about the price index rising 2.2 percent in February of 2011 which set a new record in both nominal and real terms since the agency’s price record keeping began in 1990.
What happens in the soft commodity markets in the near future depends largely on harvests that will be occurring in the next few months. There is also continued concern about the the effect of large quantities of corn and sugar for use making biofuels, including about one-third of the U.S. corn crop.
Political Unrest Exacerbates Coffee and Commodity Price Rise Situation
Meanwhile political unrest in the Middle East and Northern Africa - and in particular Libya - sent crude futures spiraling further upward, six percent for the week. On Friday oil futures reached their highest level since Sept. of 2008 when they hit $104.60.
Food supplies continue to be tight as prices rise not only to increased demand and disappointing harvests due to bad weather and other causes, but the tight supplies are also being exacerbated by speculative buying in anticipation of higher future prices, which in itself contributes to higher prices.
Numerous countries are also protecting their own food security with export bans and other measures that are also contributing to tight supplies and higher prices.
Commodity Prices Continue To Reach New Highs
This week’s cotton commodity price on the Intercontinental Exchange hit $2.1270 per pound for a benchmark May contract, a record high that tops off a one hundred percent increase in the last 6 months largely due to poor harvests in Pakistan, China and India.
Price increases are being passed on to consumers and this is causing many consumers to consider other less expensive (e.g., man-made) materials for their clothing.
Coffee Price Increases - Commodity Price Increases - Market Update
Cotton Supply Not Meeting Demand - Similar to Other Commodities
Meanwhile massive new plantings of cotton are taking place to meet demand and worldwide coffee production is expected to climb to a record 127.5 million bales in the coming season while the current high level of demand is expected to somewhat dampened by the higher prices (this remains to be seen).
Industry analysts have noted that the cotton items on store shelves right now was produced using cotton that cost about half as much as today’s prices, since cotton typically takes about six months to work its way through the supply chain to the manufactured product for sale at the store.
Furthermore, most analysts cannot envision the retail items selling for twice the price in the current market, and thus there may be a fundamental shift in the marketplace.
Commodity Prices Hit New Highs - Coffee Prices Drop in Kenya
Coffee Prices Continue Climbing - Commodity Prices Going Up
Meanwhile Arabica coffee beans climbed today to their highest levels since 1977. This price rise - May delivery ending at $2.7280 per pound - was largely attributed to concern about disappointing coffee harvests this year and next year.
According to the International Coffee Organization this year’s coffee supply should increase 9.5% overall to 134.8 million sixty-kilogram bags of coffee. However a big increase in demand by Brazil and other emerging economies will keep supplies tight.
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