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5 Historical Facts Impacting Coffee Price

Coffee Price Volatility
Posted by Markos Gkogkos
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Coffee is one of the most well-known soft commodities in commodity trading and the coffee price can be rather volatile. The three main derivative markets of coffee, New York (USA), London (UK) and Sao Paulo (Brazil) offer much potential and initiate a set of possible circumstances for hedging and speculation. In this way the coffee market retains a “healthy blood flow” with a constant liquidity and opportunity.

 

Have you ever been curious, though, to look back to events which had a strong impact on the coffee price?

 

1. Brazilian frost of 1953

When Brazil faced a critical frost back in July 1953, the Brazilian coffee harvest reduced dramatically that year. This severe frost caused price volatility on the market, however after the recovery of the frost, production moved up and the result was the decline in prices.

2. The “Black Frost” of 1975

The frost of 1953 was nothing compared to the “Black Frost” of 1975. Paraná, the “coffee capital” of Brazil had its first snowfall and in one night a huge frost covered all the coffee growing region with coffee trees, causing serious damages. Because of the look of a burnt land when viewed from the air, the incident took the name “Black Frost”.

3. Brazil’s drought of 1985

The results of Brazil’s big drought back in 1985 were the reduction of stock levels and the weakness of Brazil’s dominant position as a powerful coffee stockholder. The coffee price increased since the production was significantly dropped.

Parana State Brazil coffee

4. Collapse of International Coffee Agreement in 1989

ICA, is an international commodity agreement between coffee producing countries and consuming countries. In 1989, ICO, didn’t achieve to reach an agreement on new export quotas, which led to the breakdown of 1983 ICA. Within a month the coffee prices declined suddenly.

5. The rise of domestic consumption

Bloomberg’s recent reports, indicate that the domestic consumption in mayor coffee producing countries like Vietnam is anticipated to incline. The outcome of this would be the increase in coffee price and the limited exports.

 

Future Opportunities

 

Although these historical facts can cause a headache to someone who wants to start trading coffee, as mentioned before that shouldn’t be a discouraging factor. The potential of coffee commodities market grows rapidly and opens constantly new doors for new traders to come on board. Looking at the past facts can shield one with knowledge. But focusing on the future opportunities can strengthen one’s motivation for success.

Monitoring your risks and perform the appropriate changes in your trading strategy, of course, is in your top priorities. Each kind of soft commodity requires a unique approach in its trading strategy. It also requires investigation of the market’s trends and of course experience. When you start a career in coffee trading you will probably need to consider all the underlying risks.  You should boost your confidence by using secured software to support and guide you in your daily transactions. Choosing the right CTRM software is like choosing the right airline company to fly to your destination with confidence and flexibility.

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