Historic Coffee Price Rally & WASDE Report Recap
The Commodity Report #185
Historic Coffee Price Rally
During the week Coffee Futures hit a new all-time high. Supply concerns continue to fuel the rally in a strongly backwardated futures market. The drought that El Niño weather brought over to Brazil over the last summer continue to be persistent. While weather has turned favorable for crops, it takes time for those plants to recover. That’s in addition to worries about output in Vietnam.
This reminds me also of an important concept in the commodity world. With agricultural commodities, production getting reduced helps prices to rally. With energy related commodities like natgas or oil it’s a bit different though. Here a rally has to come from demand, not from production conditions alone.
Global coffee production is on track to fall short of demand by 8.5 million bags in the 2025-26 season, marking an unprecedented fifth year of deficits.
WASDE Report Recap
Corn futures initially jumped to a five-and-a-half-month high on Tuesday, after the USDA uploaded its latest WASDE Report. The agency slashed the domestic corn supply forecast by more than the market had expected. Otherwise, the results were mostly neutral for soybeans and wheat. From experience and backtests I can say that even when results come in higher or lower than analysts estimates - there is NO significant correlation between estimate surprises and new trends forming in the underlying grain markets.
Let’s talk USD
Interesting take UBS on the US Dollar. The investment bank eyes a weaker USD into 2025. This goes in hand with our own predictions as well. Here is what their analysts wrote during the week:
Over the medium term, we continue to see a weaker USD for the following reasons:
The current mix of inflation and labor market dynamics in the US should lead to more rate cuts by the Federal Reserve than has been priced, thereby undermining the USD's main support in recent years.
The US debt and interest rate dynamics currently leave little leeway for an even greater expansionary fiscal policy, which is what markets expect from Trump's policies.
The USD's strongly overvalued position makes any further devaluation of US trading partners' currencies on the back of tariff announcements less likely. Over the coming quarters, we expect a mix of these three factors to weaken the US dollar.
As a result, UBS currently sees upside in the British Pound as well as in the Swiss Franc and Australian Dollar. Moreover, the sentiment against the Euro is very stretched on the negative side of the spectrum and positive news from the Eurozone could lead to a significant improvement in the currency strength in 2025.
A resilient US economy and deepening geopolitical tensions around the world are making asset managers rethink their expectations for a weaker dollar. Nevertheless - this opinion has become quite crowded and therefore expensive.
In Other News…
This week, look out for the following:
Flash PMIs and Empire State Manufacturing Index on Monday
Retail Sales data on Tuesday
Last FOMC meeting of the year on Wednesday (odds are that rates remain stable at 4,75%)
Philly Fed Manufacturing Index on Thursday
PCE Price Index on Friday
Research Service
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Till next Monday, Lukas
If you have any questions in the meantime, please feel free to contact me via X or Mail.