Soaring prices of sugar and Arabica coffee after exaggerated declines

The raw sugar price surged by 5% to 15 US cents per pound within a matter of seconds yesterday, whereupon trading was briefly suspended. It had gained a good 4% by the close of trading. Buying by index funds and technical follow-up buying is being blamed for yesterday’s price leap, though fundamental explanations can also be found. In view of ever tightening supply, the previous price level of less than 14.5 US cents was too low and could therefore not be justified for any length of time. Yesterday’s price rise merely reversed the excessive price fall seen in the preceding days.

The price of Arabica coffee also climbed by 4% yesterday to achieve 175 US cents per pound, this no doubt also being a correction following an exaggerated price fall. Admittedly, there has been considerable rainfall of late in the coffee growing regions in Brazil, causing the Arabica price to decline to a six-month low of 160 US cents per pound at the beginning of the week. Nonetheless, the Reuters Weather Dashboard forecasting service says that the quantity of rain expected to fall in the key Minas Gerais growing region from November up to and including 21 January is set to be only half as much as normal. Crop shortfalls are therefore likely. We envisage further price rises in the coming weeks.