The mocha hedge

Keep it away from toddlers

FOR three months last year the price of Arabica coffee behaved like a toddler who has drunk a few espressos, jumping wildly to a price of $2.27 a pound ($5 a kilo) in October—the highest level since 2011. A comedown was inevitable: the price of coffee has since plummeted, falling below $1.28 for three days last month. It has recovered, slightly but steadily—but the calm is likely to be short-lived.

The reasons behind the fluctuations are fairly simple. Last year a drought hit Brazil, the world’s biggest coffee producer. But since then Brazil’s currency has weakened, which has prompted growers there to sell off their inventory because dollar-denominated sales now bring in more reais. In late 2014 Brazilian exports began to rise markedly, which has kept global prices low despite decreased exports from the world’s second- and fourth-biggest producers (Vietnam and Indonesia).

Cocoa prices, meanwhile, have been rising. Futures are now at a nine-month high of more than $3,250 a tonne (see chart). According to Mark Keenan of Société Générale, a French bank,...

from The Economist: Finance and economics http://ift.tt/1d41bZm