From Brazil to Vietnam coffee prices have hit a seven-year high due to global supply threats. Poor weather, shipping snarls, and soaring costs of fertilizers add to this price rise.
The highest for a most-active contract since October 2014, Arabica’s shares delivery in March rose to $2.235 a pound (4.8%) in New York. In the previous year, prices almost doubled, which raised the cost outlook for the companies like – Starbucks Corp. and Peet’s Coffee & Tea Inc. which favor the high-end variety of coffee beans.
This week’s increase in the stock prices came amidst the fall of certified stockpiles and a Brazilian currency that disintegrated incentives to sell commodities priced in greenbacks. Adding to that, for the country’s 2022 crop, early projections indicate that yields will trail the nation’s last high-yielding cycle in 2020-21. This is going to limit the stockpiles rebuilding to weather the dip in the next harvest’s output.
“The global coffee markets remain in deficit and whenever prices drop we see industry buying ahead of further tightening” – said Kona Haque, who leads research at commodity trader ED&F Man in London.
Hernando de la Roche, Senior Vice President for StoneX Financial Inc. in Miami said – “Technical chart signals suggest that if prices breach $2.25, Arabica could surge to the $3 level. There been buying tied to expiring options, which spurred shot covering.”
As food inflation is becoming more acute, future surges are threatening even the higher prices at cafes and grocery stores. According to the data provided by the government, last month, U.S. consumer prices rose at the biggest annualized rate in 30 years.
After drought and frost-damaged trees, Brazil’s output plunged but the rains will remain important for any recovery in 2022. Colombia, the second-ranked Arabica supplier, is struggling with excessive rains that reduce yields and elevate the risk of plant disease. Brazil and Colombia account for almost 3 quarters of world Arabica output. Increasing fertilizer prices is adding more to this issue to farmers along with high freight costs and a lack of container ships which hinders exports. This is the reason behind shipments of millions of bags of coffee out of Brazil being stalled. The top Robusta supplier, Vietnam has also seen freight rate climbing as ever.
These are the things that have pushed buyers to look for alternatives and Africa has made up for some of that. Meanwhile, with global trade restrictions and robust demand, fertilizer prices in Brazil are increasing. Those countries are the most impacted whose currencies have depreciated against the dollar, for example - Costa Rica, a long-time favorite of American coffee connoisseurs.
“Prices will stay high due to elevated shipping costs, which eat up the profits for producers, exporters, importers, roasters, and retailers” – said Christian Wolthers, president of Wolthers Douque, a Florida importer whose family has been in the Brazilian coffee business for decades now. In London, lifting the 12-month advance to 63%, Robusta coffee soared for a second session. Robusta is widely used for instant beverages such as Nestle’s Nescafe.
