The global coffee market is experiencing extreme price volatility, fueled by real-time weather conditions in the Brazilian coffee lands and an uptick in speculation.
As of this writing, benchmark arabica coffee prices fell 10.6% from yesterday following initial reports from Brazil that frost touching the region may not have been as severe as expected. It was the largest single-day price decline in more than a decade.
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While the relatively high prices are popularly attributed to weather conditions and volume output estimates for the world’s largest coffee-producing country, Brazil, the price volatility is also being affected by record highs in market speculation, as financial actors attempt to capitalize on coffee market swings.
The Intercontinental Exchange (ICE), which maintains coffee futures benchmarks, yesterday announced an all-time high in “open interest” in coffee futures contracts.
In other words, the total number of futures and options contracts held by market participants at the end of the trading day yesterday was the highest in the 21-year history of the exchange, with more than 713,764 for robusta and 952,524 for arabica.
[Note: An original version of this story contained a typo. The Intercontinental Exchange (ICE) was incorrectly referred to as the International Coffee Exchange.]