From Brazil to Vietnam, supply constraints have pushed coffee prices to a seven-year high, with poor weather, shipping bottlenecks, and rising fertiliser costs threatening to constrain supply.
Arabica futures for March delivery increased by as much as 4.8 percent to US$2.235 per pound in New York, the highest level since October 2014. Prices have nearly doubled in the last year, increasing the cost outlook for companies like Starbucks Corp. and Peet’s Coffee & Tea Inc. that prefer the premium variety of beans.
This week’s rally comes as certified stockpiles decline and the Brazilian currency strengthens, eroding incentives to sell commodities priced in dollars. Additionally, early forecasts for the country’s 2022 crop indicate that yields will fall short of the previous high-yielding cycle in 2020-21. This will constrain the rebuilding of stockpiles necessary to weather the typical subsequent harvest’s output dip.
“Global coffee markets remain in deficit, and whenever prices fall, we see industry buying in anticipation of further tightening,” said Kona Haque, head of research at London-based commodity trader ED&F Man.
According to Hernando de la Roche, senior vice president for StoneX Financial Inc. in Miami, technical chart signals indicate that if prices breach US$2.25 per pound, arabica could surge to the $3 level. There has been buying in conjunction with expiring options, which has resulted in short covering, he explained.
The surge in futures prices raises the prospect of even higher prices at cafes and grocery stores as food inflation worsens. According to government data, consumer prices in the United States increased at the fastest annualised rate in 30 years last month.
Brazil’s 2021 output fell sharply as a result of drought and frost damage, and rains will be critical for any recovery in 2022. Colombia, the world’s second largest supplier of arabica, is struggling with excessive rains that are reducing yields and increasing the risk of plant disease.
The two countries produce nearly three-quarters of all arabica in the world.
Fertilizer prices are increasing, compounding farmers’ woes, while increased freight costs and a shortage of container ships impede exports. This has caused a halt to the export of millions of bags of coffee from Brazil. Vietnam, the world’s largest supplier of robusta, has also seen freight rates increase.
This has compelled buyers to seek alternatives, which Africa has partially compensated for.
Meanwhile, Bloomberg Intelligence reports that fertiliser costs are increasing in Brazil as a result of global export restrictions and robust demand. Countries whose currencies have depreciated against the dollar are particularly hard hit, including Costa Rica, which has long been a favourite of American coffee connoisseurs.
Prices are likely to remain high as rising shipping costs eat into profits for producers, exporters, importers, roasters, and retailers, according to Christian Wolthers, president of Wolthers Douque, a Florida importer whose family has been involved in the Brazilian coffee business for decades.