The price of arabica coffee on the ICE Intercontinental Commodity Exchange has increased by 14% since the beginning of November, and compared to the beginning of the year is now about 82% higher due to supply disruptions, especially from Brazil – the producing country. Top of the world.
At the end of the week (Friday, November 19), the price of arabica for March term closed up 1.9% compared to the previous session’s closing, reaching 2,3340 USD/lb. $3955, the highest since November 2011, bringing the week’s gain to 6.5%.
The global coffee market has been hot since the end of 2020 due to unusual weather in Brazil and the Covid-19 epidemic in key coffee supplying countries. However, from November 8, prices surged because of “very poor supply forecasts in Brazil and Colombia (and) the possibility that La Niña could worsen the production situation causing crop problems.” more,” said Fitch Solutions.
“Supply chain tensions are at an all-time high. Never before have we faced multiple adverse factors at once,” said Judy Ganes, president of J. Ganes Consulting. “This is quickly turning into a crisis.”
The market has been buoyed by technical buying recently. Notably, although prices are high, many Brazilian coffee growers keep their goods and do not sell at this time, because the price is expected to increase further.
The increase in coffee prices in the context of a small amount of coffee in stockpiles and a strong Brazilian currency makes Brazilian coffee growers reluctant to sell immediately. There is growing concern that there will be more defaults in both Brazil and Colombia and that coffee growers have long contracted to sell coffee at prices much lower than today’s prices. increase too strongly while the output is low, so coffee growers are willing to break the contract.
Since the beginning of August, the price of arabica has increased by more than 35 percent, and has doubled in the past year, threatening to force companies like Starbucks Corp. and Peet’s Coffee & Tea Inc. – using mainly arabica as raw material – may have to raise the selling price of the product.
Rising arabica prices make robusta unable to stay out. Accordingly, robusta for January 2021 on the London floor increased by 1.5% in the last session of the week, to $2,245 per tonne due to unusual weather (lack of sunshine) making coffee berries in Vietnam – a robusta-producing country. world leading – delayed ripening, longer harvest time, which can affect coffee yield and quality.
In addition, the sudden increase in the Covid-19 epidemic in the key coffee growing area also caused a shortage of laborers to pick fruit, making the labor cost currently at least one and a half times higher than the previous crop.
The price of Vietnam’s export coffee (5% black & broken) this weekend is $280-300/ton lower than the January futures contract on the London Stock Exchange, widening from the deduction of 250-260 USD a week ago due to uncertainty about the quality and volume of coffee supply.
In Indonesia, another major coffee producer in Asia, supply is also limited while demand is normal. The deduction for the price of Sumatra Robusta coffee in Lampung province this week was stable at 250 USD compared to the reference contract in London, higher than the deduction of 170 – 180 USD compared to the January – February term on the London floor.
Frost and drought destroy crops in the world’s top coffee producer – Brazil, at the same time too much rain affects production in Colombia while a shortage of shipping containers is holding back exports from Vietnam. .
Supply difficulties have not yet ended when the civil war broke out in Ethiopia, making the supply even more depleted. Analysts say any adverse developments for Africa’s largest arabica coffee producer could lead to further tightening of world coffee supplies.
Brazil accounts for 40% of the world’s coffee production, and the country currently does not have enough coffee reserves to cool this commodity.
According to Anike Ejlers Wolthers, founder of Red Container Coffee, a broker based in Santos, Brazil’s main export hub, there are around 3.5 million bags of coffee – or more than £400 million – lying around. in Brazilian warehouses. Shipping this amount of coffee as it is now will take up to 100 days, while the normal level is this 30.
The difficult transportation, high freight and long time make the coffee price fever difficult to cool down. It is known that some coffee trips to reach the destination market take 3 times longer to transport than before.
Even India’s coffee production – which is offsetting short-term coffee supplies for the world market – is facing the possibility of a yield loss due to excessive rain.
In its latest report, the USDA estimates both world coffee production and consumption to increase and thinks that stocks monitored by ICE – which have fallen 77% year-on-year – will continue to decline, The price of this commodity is likely to continue to increase in the context that transportation costs and fertilizer prices are both very high, and the labor shortage is still unresolved.
Rising fertilizer prices also force farmers to raise the wholesale price of coffee. Fertilizer prices in the world are currently at record highs, while fertilizers are especially important for coffee crops. Many coffee growers complain that the fertilizer they ordered for 5-6 months has not been delivered enough.
According to Regis Ricco, director of RR Consultoria Rural based in Minas Gerais, about 30% of Brazil’s coffee farmers are not receiving the fertilizer they ordered, or worse, can’t find any. Which to buy. This could result in a loss for the coffee industry over the next two years as the soil may not have enough nutrients to support normal flower and fruit development in the 2023 crop.
Judy Ganes, president of J. Ganes Consulting, predicts that the price of arabica may soon rise to $2.7 to $2.8/lb. Some experts even think that all of the above factors could cause arabica coffee prices to rise to 50 US cents/lb in the near future.
Currently, the price of coffee shows no sign of stopping. If futures contracts continue to increase in price, it means that the price of coffee will increase even more. This comes at a time when consumers are already struggling due to high inflation as prices of other foods have increased, making coffee an important factor contributing to inflation and hindering growth. world economic recovery.
References: Financialpost, Reuters, Bloomberg
