A storm of speculation is driving global coffee prices to sky high. The green bean, that suffered a severe market set-back couple of years ago, is now on a bull run.

Fuelled by unrealistic speculations of aggressive hedge funds and mutual funds on futures terminals in London (robusta) and New York (arabica), the prices of commodity have risen sharply from 100 cents pound barely six months ago to 150 cents now."This has exposed commodity to lot of criticism as price hike was not triggered by legitimate price discovery mechanism called demand and supply. There's plenty of stock in the market, also a bumper crop from Brazil is hitting the market anytime this month," said a market observer.

Speculatory positions worth $12 trillion are currently held by big five wall street investors on New York Mercantile Exchange (Nymex), in the petroleum sector.

"A similar scenario is happening in the agriculture commodities markets as well. The bulk stocks are held by limited number of players and they are dictating the market. However, in India, funds are not allowed to play in commodities market," the market observer further added.

Going almost the stock market way, will this take the cuppa closer to a crash? Well, that's what currently worries the markets. "Farmers and exporters are relishing it. But such huge price hike is not so positive for consumer markets, thereby making the commodity highly vulnerable to price fluctuations," said Anil Bhandhari, a leading exporter himself from Karnataka.

Ramesh Rajah, chairman Coffee Exporters' Association said, "Sharper price movement is not good, although price discovery and liquidity in market is encouraging. Funds are finding commodities market as short-term parking place. Speculation can take prices either of the ways, unrealistically high or low."

International Coffee Organisation executive director Nestor Osorio said, "Prices of oil are high and increases in investment of coffee growing, supply of coffee will only be enough to meet demand if price remain firm."
Source: Times of India