Starbucks boss Howard Shultz was wrong to blame speculators for the bubbling price of coffee – with their relatively low positions actually holding out the potential for a further rally, VM Group analysts have said.
VM Group, which provides analysis for ABN Amro, said that whatever else was driving the rally, which has seen prices of New York arabica beans soar some 50% over the last six months, "it is not speculators, or at least not speculators alone".
Regulatory data showed that non-commercial investors had been holding a relatively modest net long position – that is the balance of long investments, which benefit when futures rise minus short bets, which benefit when prices fall – compared with the reaction in prices.
As of November 16, for instance, when New York arabica coffee closed at nearly exactly $2 a pound, the net long was a little over 27,000. A year before, the net long was nearly 29,000 lots, yet New York arabicas closed at some $1.43 cents a pound.
In fact, given the "relatively low net long of the speculative money, we could easily imagine a further rally in the weeks ahead" as funds raised their positions.
VM's comments follow an assertion by Mr Schultz, the Starbucks chief executive, that it was speculators who had driven commodity markets, including coffee, to recent highs.
"There is zero, let me repeat, zero shortage of coffee and there is no demand problem," he added.
However, VM Group analysts said that the 2010-11 coffee season "remains one of some physical tightness" which, while showing a surplus, faced a decline next year in output from Brazil, whose arabica crop follows a two-year cycle of higher and lower production.
Tight supplies looked set to keep prices firm longer-term too, as the world grapples with rising demand, which Michael Neumann, the chairman of coffee trading giant Neumann Kaffee, pegged at 2-2.5% a year.
While there must be "some doubt" as to whether growth will indeed be so strong, Mr Neumann's "identification of the challenge ahead is indisputable", VM said.
"Prices over the next decade look like rising steadily... demand over the long term looks like easily outstripping supply in both arabica and robusta [beans]."
The analysis group added that it would "prefer trusting the judgement of a coffee traded rather than a coffee retailer".