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Coffee leads the way in the first half of 2014

Coffee has seen a surge in prices over the first half of the year with the spot futures price on the ICE rising from 1.11 on the first day of trading to a current price of around 1.75, which constitutes a 57.7% increase over the first half of 2014. This is down slightly from a peak hit on April 23, which say an intraday high of 2.19, which represented a nearly doubling (97.3%) of coffee prices in just under four months.

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So if you have seen prices rise at your local coffee shop or where you get your beans, you can blame an unprecedented drought in January and February in Brazil. Rainfall in the early months of the year are vital to coffee producers in Brazil, which is responsible for nearly 1/3 of total coffee production, as this is the key rainfall period leading into the growing season.

As a result of these skyrocketing coffee prices, big coffee consumers such as Starbucks, Dunkin Doughnuts and Folgers have all raised prices of their coffees. Most of these companies are active participants in the futures markets and have locked in coffee prices for years in advance.

If coffee production doesn't bounce back next year the longer term impact of this drought could be felt on the bottom line of coffee sellers and in the wallets of coffee drinkers.

Previous to drought and rapid price rise in the first half of 2014, coffee had been in a strong downtrend since 2011 when prices were above 2.00. 

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