image taken from sciencedaily.com

Coffee prices have dropped to 125.85 cents a pound, after enjoying high performance in the past weeks due to drought concern. The dry weather that Brazil experienced recently has threatened the flowering process of the crop.Three drivers have been identified to drive the price downward. The first driver is the weather outlook in Brazil. Rain is forecasted for Brazil’s coffee growing state, triggering many traders to take a short position. Secondly, the depreciation of Brazil Real towards US dollars gives a greater incentive to the exporters. A weak currency could mean cheaper production as a result of a value decrease of non-tradeable goods (e.g. wages). Lastly, the news about Columbia lowering the quality standard of exported coffee is another potential positive supply shock that will cause price to collapse. However, some forecasters are predicting that dry condition will persist in Brazil. I will hold my coffee for a few days before changing my position to short.

The price of wheat and corn also drop because of the expected rainfall in some production states in US that will help to boost output volumes. As a result of the falling price of these two commodities, my portfolio value has suffered significant decrease of 0.14%.

Price of sugar has seen small increase in the past week. But with news of India, the second biggest producer, are encouraging sugar mills to step up their export output, price is speculated to drop. I will be changing my position to short in the coming days.

O