Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / The Coffee Futures Surge That Changed the Commodities Game
Transcript
- Lucas: So, coffee futures are up seven point seven percent in the last five days. That brings the Arabica contract to two seventy-three point six cents a pound. That's a level we haven't seen since 2022. Luna: And this isn't just a blip, right? I mean, the coffee rally has been building all year. But seven percent in a week feels like something snapped. Lucas: Yeah, exactly. The trigger this week is a supply shock out of Vietnam. Vietnam is the world's biggest producer of robusta beans—that's the stuff in instant coffee and many espresso blends. And they're in the middle of the worst drought they've seen in a decade. Luna: Right, I read that the Mekong Delta water levels are at historic lows. That's where most of the robusta is grown. Lucas: Correct. The Vietnamese government actually issued a warning last week that output could drop by fifteen to twenty percent this season. And that's on top of already tight global stocks. The International Coffee Organization reported that global coffee inventories are at their lowest point in seven years. Luna: So we've got a supply crunch on robusta. But Arabica prices are surging too, even though Arabica is mostly grown in Brazil and Colombia, which aren't having drought issues right now. What's the connection? Lucas: That's the interesting part. Arabica is the higher-quality bean, but roasters have been blending more robusta into their mixes to keep costs down. With robusta prices spiking, they're scrambling for alternatives. And also, there's a demand shift happening. Post-pandemic, at-home espresso consumption has exploded in the U.S. and Europe. Nestlé reported that their Nespresso pod sales grew twelve percent last quarter alone. Luna: So more people are making espresso at home, and espresso blends typically use a higher percentage of robusta for crema and body. That's a double whammy. Lucas: Exactly. And it's not just Nestlé. Starbucks has been tweaking their core roast profiles to include more robusta to maintain margins. That structural demand shift is what makes this supply shock different from, say, a frost in Brazil that everyone knows will pass. Luna: What's interesting to me is how this coffee story fits into the broader commodity picture right now. Oil is crashing—crude down thirteen percent in a week, gold is surging to forty-three sixty an ounce. Coffee is up. What's the through line? Lucas: I think the through line is that the old correlations aren't holding. Normally, when oil drops, that's deflationary, and commodities broadly fall. But coffee is driven by its own micro supply story. Gold is driven by a flight to safety—the Dow jumped three hundred fifty points today on that oil drop, but there's also this Fed uncertainty. Luna: Right, Fed Chair Warsh is expected to withhold the dot plot from the rate outlook tomorrow. That uncertainty is boosting gold. Lucas: So you've got three different narratives in the same market: oil is collapsing because of demand fears—maybe a global slowdown—gold is rallying because of that same fear plus Fed ambiguity. Coffee is rallying because a specific crop failed. It's a reminder that commodities are not a monolith. Luna: And the coffee story might actually have a longer tail than the oil one. Because if Vietnam's drought persists, we could see robusta prices stay elevated into next year. Lucas: Absolutely. The El Niño pattern is still active, and forecasts for the next planting season in Vietnam are not great. So roasters who locked in supply contracts early are fine, but the spot market is getting squeezed. That margin pressure will eventually show up in consumer prices. Luna: Speaking of that, you know, we talk about these supply chains and price moves—it's why we do this show. And if walking through the economy with us has made something click for you, a couple of dollars a month is genuinely what keeps these going. It's at buy me a coffee dot com slash fexingo. No pressure, just if you've gotten something out of it. Lucas: Yeah, that really does help us stay independent and keep digging into stories like this one. So, back to coffee—what should listeners look for next? I think the key number to watch is the weekly export data out of Vietnam. If shipments start slowing, this rally has more room to run. Luna: And I'd add the USDA's June acreage report for Brazil's Arabica crop. That comes out next week. If that shows any reduction, we could see Arabica catch up to robusta's move. Lucas: Good point. For now, the coffee market is telling us that old supply and demand logic still works—you just have to look at the right level. Thanks for joining us on The Commodities Economy. Luna: See you next time.