Bitter brew for coffee roasters as Vietnam adds to Brazil woes

Leading coffee roasters have been hit by rising bean costs as a result of a stringent lockdown in Vietnam, the world’s second-largest grower, due to concerns over export supplies.

Vietnam is the world’s biggest exporter of robusta coffee, a bitter bean used in instant coffee and several espresso mixes. The government has imposed travel restrictions in producing areas due to a high increase in Covid-19 infections and a vaccination shortage.

“There are serious concerns that you won’t be able to move your coffee out of the country,” Carlos Mera, a Rabobank analyst, said.

On Friday, the robusta futures benchmark hit a four-year high of $2,043 per tonne, up nearly 50% since the start of the year. After unseasonal frosts in Brazil struck trees already weakened by drought, arabica rose to seven-year highs in July.

While many roasters have hedging arrangements in place to protect them from price swings in the coffee market, analysts have begun to downgrade earnings projections for some firms.

Last Monday, JM Smucker, the American food firm behind Folgers and Dunkin’ Donuts, announced a 17 percent drop in quarterly profits for its coffee business compared to the previous year. It also lowered its full-year earnings forecast by 5%, to $8.25-$8.65 per share, citing “several extreme weather events” that “have impacted critical commodities important to our business.”

Some corporations, such as Starbucks, have long-term hedging contracts and will be immune to the effects of rising commodity prices globally. Starbucks said at the end of July that it had locked in its coffee pricing for the current fiscal year, which runs from September 2021 to September 2022, as well as the following fiscal year.

Other companies, such as JM Smucker, have hiked their retail pricing to shore up profits that have been squeezed by rising coffee costs. Tchibo, a renowned roaster and retailer in Germany, and UCC Coffee, a leading retailer in Japan, have been obliged to announce retail price increases.

JDE Peet’s, the second-largest coffee roaster after Nestlé and owner of brands such as Douwe Egberts and Stumptown, stated earlier this month that it had “quite solid hedging in place” and was in the process of negotiating prices with retailers.

Nonetheless, some experts believe that the rapid increase in bean prices will eat into the Amsterdam-listed company’s profit margins.

Read more •

Suggested Reading