Advertisement

'Breakfast is gonna get a whole lot more expensive': Futures strategist

Blue Line Futures' Phil Streible breaks down why the price of coffee and other commodities keeps rising.

Video transcript

SEANA SMITH: Some unwelcomed news, I think, for a lot of us. The cost of coffee, it's getting much more expensive. Prices have shot up nearly 60% so far this year and it doesn't really show any sign of slowing down soon. So we want to bring in Phil Streible. He's the chief market strategist at Blue Line Futures. Phil, it's good to see you.

I know coffee is just one example because we were just talking about energy in the last block. Crude has been on quite a tear. So just help us, I guess, first, make sense of some of the chaos that we're currently seeing in the commodities market.

PHIL STREIBLE: Yeah, and I could tell you that breakfast is going to get a whole lot more expensive. You got oats up 83%, sugar up 27, lean hogs are up 10%. So really, this kind of all stems from a number of different things. It was a cross between adverse weather conditions, which no one can really control that, as well as supply chain bottlenecks, which we believe those will be eased in the next few months.

SEANA SMITH: So when you take a look at the price of coffee, up what? Just around 60% since the start of the year, how much worse do you think that spike could potentially get?

PHIL STREIBLE: Yeah, it could get a lot worse. And let me break it down for you because a lot of people don't really know the story. The story goes, down in Brazil, remember they produce about 40% of the world's Arabic coffee, they were hit with a severe frost. And the frost was back in June, July, mostly in July. Prices had rallied about 40% then, and the expectations were 40% of the world's coffee was lost at that point.

The numbers came in right around 25%, is what we're anticipating. So what we're seeing right now is the ramifications of it. Many of the trees had to be completely removed. New trees had to be planted. So you've got this serious supply strain. Now the demand is continuing to increase.

So with the reopening of the economy, you've got other areas, other markets, specifically Europe, Australia, which have still been tightly locked down. Once they reopen, cruise ships come back online and also airlines. Those are all major consumers of coffee. So the supply could be severely strained. And I really believe new all-time contract highs are just right around the corner.

SEANA SMITH: And so Phil, we could potentially see record prices then on the price of coffee. When you take a look at something like this happening in the past, can you compare it to anything like you've seen before and, I guess, how long does it normally take to resolve?

PHIL STREIBLE: Yeah, it could take quite a while because the problem is that the coffee that was damaged down in Brazil, it takes about three seasons for those crops to come full back. So you're going to have to rely on other outside sources.

You go over to Vietnam, they're a major producer of coffee as well. They have supply chain bottlenecks. They just can't get the product out through the ports, access shipping containers, like, what they need to be able to fulfill the demand that's there.

And I think, really, going into the holiday season, you're going to see another spike up in that demand. So coffee prices, again, they're just one element on this big inflation play that's going on-- are going to go a lot higher.

SEANA SMITH: And speaking of coffee just being one element in all this, I also want to bring attention to crude because it's really amazing what we've seen there. The rise in the price their. Crude closing just above $82 a barrel today. Some fellow calling for $100 a barrel. Do you think that's in play?

PHIL STREIBLE: It could be. It's totally possible. So oil hitting a new cycle high. The demand is there for crude oil. The problem that we have at the moment is that US inventories are being severely drawn down. We are not recovering on our shale production. We're sitting on right around 11 million barrels a day. We need to be back up at 13, 13 and 1/2.

OPEC is also-- they're really keeping those prices quite high. They don't anticipate bringing on any excess supply. They keep throwing out the excuse, like, "Hey, what if there's another resurgence of Coronavirus, of some new variant and we have to lock down again?" So they're very cautious. But we all know the game that they're playing. Get prices up as high as possible.

The question is is that what price? Is it $100? Is it $90? Is it beyond that where it really starts to damage growth and we start to see the economy start to throttle back? And that could mark somewhat of a top on the US equities.