Supply woes from Brazil to Vietnam sent coffee prices to a seven-year high with poor weather, shipping snarls and soaring fertilizer costs threatening to curb supply.
Arabica futures for March delivery rose as much as 4.8% to $2.235 a pound in New York, the highest for a most-active contract since October 2014. Prices have almost doubled in the past year, raising the cost outlook for companies such as Starbucks Corp. and Peet’s Coffee & Tea Inc. that favor the high-end variety of beans
This week’s rally comes amid falling certified stockpiles and a firmer Brazilian currency that eroded incentives to sell commodities priced in greenbacks. In addition, early projections for the country’s 2022 crop indicate yields will trail the nation’s last high-yielding cycle in 2020-21. That will limit the rebuilding of stockpiles needed to weather the typical dip in the following 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.
Technical chart signals suggest that if prices breach $2.25 arabica could surge to the $3 level, said Hernando de la Roche, senior vice president for StoneX Financial Inc. in Miami. There’s been buying tied to expiring options, which spurred short covering, he said.
The surge in futures threatens even higher prices at cafes and grocery stores as food inflation becomes more acute. U.S. consumer prices rose at the biggest annualized rate in 30 years last month, according to government data.
Brazil’s 2021 output plunged after drought and frost damaged trees, and rains will remain crucial for any 2022 recovery. Second-ranked arabica supplier Colombia is struggling with excessive rains that cut yields and heightens the risk of plant disease. The two countries account for almost three-quarters of world arabica output.
Soaring fertilizer prices are adding to farmers woes while elevated freight costs and a lack of container ships hinder exports. That has stalled shipments of millions of bags of coffee out of Brazil. Vietnam, the top robusta supplier also has seen freight rate climb even higher.
That’s pushed buyers to seek alternatives and Africa has made up for some of that.
Meanwhile, fertilizer costs are rising in Brazil amid global export restrictions and robust demand, according to Bloomberg Intelligence. Countries where currencies have depreciated against the dollar are feeling the impact even more, including Costa Rica, long a favorite of American coffee connoisseurs.
Prices are likely to stay high as elevated shipping costs eat into profits for producers, exporters, importers, roasters and retailers, said Christian Wolthers, the president of Wolthers Douque, a Florida importer whose family has been in the Brazilian coffee business for decades.
In London, robusta coffee rose for a second session, lifting the 12-month advance to 63%. That variety is used widely for instant beverages such as Nestle’s Nescafe.