Coffee, Cocoa, and Cotton Prices Surge Amid Supply Concerns

Coffee, Cocoa, and Cotton Major Producing Regions Suffer COVID-19 Impact
Supply Shortage Concerns Amid Economic Recovery in China and Others
Prices Fell Early Year, Recently Rising

[Asia Economy Reporter Naju-seok] Amid the COVID-19 pandemic, prices of agricultural products such as coffee, cocoa, and cotton have started to rise. These crops, which saw a price crash earlier this year, are now facing supply shortage concerns as major production areas have been hit by COVID-19.

[Image source=EPA Yonhap News]

According to the Wall Street Journal (WSJ) on the 11th (local time), prices of so-called soft commodities (agricultural products or livestock rather than minerals) such as coffee, cocoa, and cotton are rising rapidly. Over the past month, cocoa futures prices surged 15% to $2,488 per ton, and coffee futures also increased 14% to $1.12 per pound. Cotton and sugar futures prices have also risen 11% and 20%, respectively, since May 1.

Earlier this year, these commodities experienced a sharp decline amid concerns over the spread of COVID-19. However, they have recently shown an upward trend.

The recent price increase in coffee and other commodities is primarily due to major producing regions being directly impacted by COVID-19. Joshua Graves, senior market strategist at RJO Futures, explained, "From a big picture perspective, in countries like Vietnam and Brazil, COVID-19 issues continue, and there are concerns that if infections increase, supply will decrease."

Sugar and cotton are also suffering from COVID-19 impacts in major producing countries such as Brazil and Mexico. Brazil, which has the second highest number of COVID-19 cases in the world after the United States, is the world's largest producer of sugar and coffee.

Conversely, countries like China and those in Europe are gradually recovering from the COVID-19 shock, leading to increased commodity consumption. While the supply situation is worrisome, rising demand inevitably pushes prices higher.

The weakness of the dollar is also cited as a reason for the strength of soft commodities. Since soft commodity prices are denominated in dollars, the dollar's weakest level in 10 years has lowered commodity prices in other currencies, providing importers with greater incentives to increase imports.