GLOBAL – Coffee prices have hit a seven-year high due to a shortfall in the global supply of the commodity and worsening climate conditions in South America where most of the crop is grown.
Arabica futures for March delivery rose as much as 2.6% to $2.189 a pound in New York, the highest rise for a most-active contract since October 2014.
In the previous year, prices almost doubled, which raised the cost outlook for 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 a fall of certified stockpiles and a Brazilian currency that disintegrated incentives to sell commodities priced in greenbacks.
Early projections also indicate that yields in Brazil will trail the nation’s last high-yielding cycle in 2020-21, limiting the stockpiles rebuilding to weather the dip in the next harvest’s output.
After drought and frost-damaged trees, Brazil’s output plunged while in Colombia, the second-ranked Arabica supplier, excessive rains are expected to reduce yields and elevate the risk of plant disease.
Increasing fertilizer prices in Brazil are adding more to this issue to farmers whose ability to produce more will be constrained at least in the near future.
High freight costs and a lack of container ships are also adding to the problem and have been highlighted as the reason behind delayed shipments of millions of bags of coffee out of Brazil.
“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.
The top Robusta supplier, Vietnam has also seen freight rate climbing as ever, pushing buyers to look for alternatives and Africa has made up for some of that.
The surge in futures is threatening even higher prices at cafes and grocery stores when food inflation is worsening.
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.”
Some companies have already increased prices and higher costs may further hit consumer pockets.
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