Coffee Price Increase 2011

by Daniel Harrington on February 20, 2011

Arabica Coffee Shortage is Driving Up Coffee Prices in 2011

UNITED STATES (Feb. 20, 2011) – Coffee Market Business Report. Coffee stockpiles in Brazil are now being held from sale in anticipation of higher prices for the green coffee beans (unroasted coffee beans), adding yet another concern to an Arabica coffee bean shortage that is helping to drive up coffee prices.

Since Brazil is the largest coffee grower in the world, their announcement of withholding coffee stockpiles from sale serves only to exacerbate the current problems in the coffee supply chain which have contributed to significantly higher coffee prices in the last six months as well as a spike in the price of coffee futures on world markets.

According to one of Brazil’s top coffee officials, Brazil is holding out for higher prices before releasing its coffee stocks. This provides fresh support for the current rally in coffee prices and coffee futures.

Coffee Stockpiles Reach Historic Lows Worldwide

Stockpiles of green coffee beans have become lower across the globe, last year decreasing to about 12 million bags in coffee producing countries which is a record low.

Stockpiles reached a 10-year low in New York with green Arabica coffee beans on the New York exchange decreasing from 3.1 million bags at the start of 2010 to 1.7 million bags at the finish of the year.

This overall reduction in green coffee stocks makes world coffee prices more sensitive to any new problems in the supply chain. An example of this was seen in October, 2010 when rains were late for the coffee plant flowering season in Brazil driving prices up about 30% in the next month (the rains eventually came).

Brazil Coffee Consumption Increasing at a Rapid Rate

The current announcement of Brazil to hold its coffee stocks comes at a time of rapidly rising coffee consumption in Brazil. The country’s per capita coffee consumption was 4.81 kilograms (e.g., 81 liters of brewed coffee) in 2010 which broke a record set in 1965.

Brazil is expected to exceed the overall coffee consumption of the United States in 2012 and the country is expected to keep half of all of its own coffee production by 2015 to meet internal demand.

Arabica Coffee Shortage Causing Coffee Price Increases

World Coffee Harvest in 2011 Facing Difficulties on Several Fronts

Due to a poor coffee harvest year in 2010 for numerous coffee growing countries and some continuing problems with production in 2011, there is little prospect of a rapid rise in coffee supplies anytime soon. Meanwhile worldwide demand is surging, particularly for the higher quality Arabica coffee beans for the specialty coffee market.

These are the Arabica coffee plant varietal coffee beans that are served at your local Starbucks, Peet’s, McDonald’s, Caribou Coffee and many fine coffee shops, and it is also the coffee being sought after by some rapidly growing markets including Brazil, India and China with emerging middle classes that want their fine coffee and are willing to compete for the best coffee beans by paying a higher price for their coffee.

Coffee Price Increase 2011 continued:

A New Breed of Gourmet Coffee Lovers Affects World Coffee Markets

All over the world it seems there is a new breed of gourmet coffee lovers who have come to enjoy the top specialty coffees. Higher coffee prices in 2010 and into 2011 are also being fueled by the declining value of the U.S. dollar that results in overall higher commodity prices for Americans.

Another factor are the current low interest rates which are being maintained by the Federal Reserve. This is believed to cause  investors to put their money in commodities which has the effect of contributing to rising commodity prices including copper, cotton, soybeans and corn.

Brazil’s domestic coffee consumption has been rising much faster than the worldwide level of two percent annually, and this is also the case in Asia including the economic powerhouse of China where many people have switched over from tea (some say to emulate Europeans and Americans) and are now developing a taste for gourmet coffee.

China’s coffee consumption has increased an estimated forty percent in just the last two years.

Coffee Price Increase 2011- Coffee Business Report

Worldwide Demand for Arabica Coffee Keeps Growing

Brazil’s coffee crop is about seventy-five percent Arabica coffee beans, the same type of coffee bean that the young professionals of the country want.

Brazilians have of late been developing an allegiance to fine whole bean coffee beverages including specialty coffee drinks. As the country grows wealthier demand for good coffee goes up.

The current spike in coffee prices should make the country even wealthier, and thus this may continue to increase overall coffee demand in Brazil at an even faster rate.

While gourmet coffee lovers are increasing in numbers around the world, the United States and Europe are sustaining their consistently high demand for coffee even through the years of economic downturn. Any rebound in the world’s economies could further fuel demand for coffee.

Meanwhile other commodities have also seen rapid price increases that threaten to go even higher in the coming year. These commodities include copper (which recently attained a 40-year high), cotton, wheat, sugar, pork, beef and the iron ore used to produce steel.

Brazil Holds On To Its 1.2 Million Bags of Stored Coffee

Brazil is now in possession of about 1.2 million bags of Arabica coffee in storage since 2009 and ready for export. This coffee was purchased from farmers in early 2010 for about $180/bag with the goal of propping up coffee prices.

At that time coffee futures were only about half today’s coffee futures price. At current prices the profits on this stored Brazilian coffee would be about US$240 million.

The coffee in storage in Brazil amounts to only about 3% of Brazil’s exports last year though if the supplies were released today it would have a loosening effect on the current tight coffee supply situation. Current estimates have the increasing demand for coffee outstripping supply by as much as 30 million bags in the next decade unless supplies increase.

News About Coffee Price Increases in 2011- Coffee Business Report

Tight Coffee Supplies Could Lead to Future Coffee Price Increases

Some analysts are predicting a coffee shortage in 2011 and 2012 and this could be made worse if there are any new disruptions in the supply chain (e.g., bad weather, coffee hoarding by coffee growing countries).

Meanwhile May Arabica coffee futures in New York continue to rise and are now at a nearly 14-year high.

Coffee Supply May Not Meet Demand Which May Cause More Coffee Price Increases

Worldwide coffee demand in 2011-2012 is expected to be about 135 million 60-kg bags while worldwide coffee supply is estimated to be about 131 million bags, according to estimates released by the coffee information company CoffeeNetwork last week. Other analysts have predicted that the supply and demand balance will be closer to even.

With coffee demand threatening to exceed the supply and the world’s coffee storehouses having been significantly depleted in 2010, coffee prices will likely continue to sustain their high levels at least throughout 2011 and possibly well into 2012.

Coffee Price Increases Won’t Cause Brazil To Incentivize Farmers

Brazil also announced that it would be not providing government incentives to coffee growers to increase their coffee production because it carries a risk of causing prices to collapse which would hurt the coffee farmers and lead to a reduction in supplies.

While this is an “off year” or “weak year” in Brazil’s alternating cycle of weak and strong years, it is also another disappointing coffee harvest year in Colombia which is the world’s second largest Arabica coffee grower.

Brazil Expecting Reduced Coffee Production in 2011

In January of 2010 the coffee harvest of Brazil for 2011 was estimated by the Brazil crop supply agency Conab to be in the range of 41.9 million to 44.7 bags (60-kilogram bags) which is a decrease from the 48.1 million bags of coffee produced by Brazil in 2010.

Coffee Price Increases In Recent Years Continue Unabated

Coffee prices have actually been climbing for years, having risen about thirty percent in the years from 2004 to 2007.

Coffee prices rose 40% from May through December, 2010 and the current supply of high quality Arabica coffee beans remains very tight as the countries around the world develop a taste for specialty coffee including espresso drinks such as cappuccinos and lattes made with espresso produced from specialty coffee beans.

Coffee Yield Reductions Already Factored Into Coffee Price Increases

While the predicted reduction in coffee yields has already been factored into to today’s coffee prices there may be new concerns about supply shortages that could continue to drive up coffee prices.

In Vietnam which primarily grows the lower grade Robusta coffee plant varietal (traded in London), the heavy rains of December of 2010 caused an influx of speculation coffee buying in New York.

Coffee Price Increases in 2011 Likely to Continue – Coffee Business Report

Coffee Futures Rise On Expectation of Future Coffee Price Increases

The price of coffee futures rose about 40% between fall and summer of 2010 and a predicted continuation of the shortage of coffee beans is rippling through the world coffee markets.

The massive speculation by traders betting on future coffee price increases brought a large amount of money onto the Intercontinental Exchange where the buying and selling of coffee futures occurs.

Coffee futures contracts are traded primarily on the Intercontinental Exchange with the the New York Coffee, Sugar, and Cocoa Exchange handling Arabica Futures and the London Futures Exchange handling Robusta Futures. Coffee futures rose 72% in 2010 ending at a 13-year high.

Fundamental Shift in Coffee Markets Causing Coffee Price Increases

While speculation drove up coffee prices at the end of 2010 there were also more fundamental reasons including the rising demand for coffee and questions about future supply disruptions due to bad weather in India, Brazil, and other countries.

Excessive rains have also caused a blight to the coffee crops and damaged infrastructure in Central America which is now in its third straight year of historic low coffee production.

Coffee farmers in Colombia have sustained extensive damage from the broca beetle as well as dreaded coffee leaf rust. Currently the estimate for a full return to normal coffee production in Colombia – which is around eleven million bags – is at least one year and up to two and one-half years.

In Tanzania a 9% decrease in coffee production caused the benchmark coffee price of that country’s coffee crop to rise five and one-half percent at a Jan. 20, 2011 auction. The top AA Arabica grade in Tanzania climbed to $248.02 from $261.72 for a fifty kilogram bag.

Tanzania hopes to increase its current 70,000 tons of yearly coffee production to about 100,000 pounds by 2015 due to massive plantings they have been engaged in. Tanzania is most respected in the coffee world for its delicious Tanzania Peaberry coffee.

Massive New Coffee Plantings Still Not Meeting Increase in Demand for Arabic Coffee Worldwide

Though some of the world’s top coffee growers – including Brazil and Vietnam – have planted massive new coffee acreage it has not yet served to stabilize coffee prices amidst rapidly rising worldwide demand for coffee. Most analysts are seeing a fundamental shift in the world’s coffee markets as demand has clearly caught up with and now likely exceeded supply.

Colombia’s coffee harvest could see further problems due to the persisting La Nina weather pattern. According to the Colombian National Federation of Coffee Growers there is a strong potential for a smaller harvest this year and thus there will be higher coffee prices for that country’s coffee. The International Coffee Association has also said that coffee prices will likely remain high at least through 2011.

Coffee Price Increase in 2010 and 2011 May Continue – Arabica Coffee Business Report

Panama Coffee Production Drops Due To Inclement Weather

Another area that has seen some problems in regards to annual coffee production is Panama which received record rainfalls in 2010. This caused a reduction in coffee supplies which dropped from 186,000 quintals to 156,000 quintals.

A major reason for this coffee production reduction was damage to the country’s coffee plants due to mold which becomes more of a problem when the humidity rises for extended periods.

Panama’s coffee crop is expected to drop about 20%. The country has come into its own in recent years and turned coffee reviewers’ heads last year when the now famous Panama Geisha coffee set a world record by drawing an auction price of $170/pound. Panama produces about sixty different brands of coffee.

Coffee Supply Problems Will Likely Continue to Cause Coffee Price Increases

Other countries expecting lower coffee production in 2011 include Guatemala, and Costa Rica. The country of Indonesia saw an almost 12% drop in coffee exports.

In Kenya land pressures have led to coffee plants being uprooted to provide residential real estate, particularly in central and western Kenya. Prices went way up at the end of 2010 for Kenya AA Coffee on the Nairobi Coffee Exchange.

Coffee Prices Inelastic with Respect to Price Increases

The market has shown that consumers of gourmet coffee are willing to pay higher prices with little resistance. In other words, specialty coffee in particular is inelastic with respect to price increases – when the price goes up it doesn’t have a considerable affect on demand.

A rise in the cost does not deter consumers of gourmet coffee so the current supply shortage and price increases should not be expected to reduce overall demand.

The Arabica coffee plant varietal is one of the two main commercial varietals of coffee plants being grown along with the lower-priced Robusta coffee beans.

Robusta grows well at lower elevations and is more resistant to coffee plant diseases and pests, while the Arabica coffee plant varietal prefers higher elevations and is more susceptible to pests and diseases.

The specialty coffee market virtually all Arabica coffee though Robusta coffee beans are used in many espresso coffee blends to impart a certain desirable quality to the espresso brew as well as the espresso coffee drinks that are made with it.

A shortage of the higher quality Arabica coffee beans has caused some concern among the specialty coffee community that the overall quality of higher grades coffee will suffer and that blending of the lower priced Robusta coffee beans in with Arabica coffee may become more common.

Coffee roasters are quite aware of the “blending wall” which is the point beyond which the amount of Robusta beans in the coffee blend should not be increased without lower the quality of the brewed coffee.

Coffee Research Initiative Aims To Improve Coffee Quality

To meet growing concerns over production of high quality coffee an initiative was launched called the Global Coffee Quality Research Initiative (GCQRI). The purpose of GCQRI is to form a network of collaborating coffee companies which will direct and support coffee research and then provide the results for free to all who are interested.

The CCQRI initiative seeks to not only improve overall coffee quality but also bring benefits to coffee farmers. The hope is to bring about a rise in the supply of Arabica coffee as well as Robusta and bring farmers better profits. Another goal is to increase sales by coffee roasters as well as worldwide coffee consumption (e.g., by providing a better product).

The Global Coffee Quality Research Initiative is supported by the Specialty Coffee Association as well as the Borlaug Institute (an agricultural research institute at Texas A&M University). Research will focus on problems with growing specialty coffee, which is now estimated to comprise around 40% of the coffee market overall.

Coffee Price Increase 2011 – Arabica Coffee Shortage a Concern

Coffee Companies Have No Choice but to Pass On Coffee Price Increases to Consumers

Virtually all of the big coffee companies raised their prices in 2010. For example, Green Mountain Coffee Roasters rose their prices for coffee products in North America as much as 15% in October, 2010 including prices on Coffee K-Cups (brewed in Keurig single serve brewing systems and sold under Caribou Coffee, Tully’s Coffee, Newman’s Own Organics, Timothy’s Coffee, Green Mountain and other brand names).

By this date the J.M. Smucker Company, which is the parent company of Dunkin’ Donuts, Folgers and Millstone, had already raised their coffee prices about nine percent on their main coffee products because of the rise in the cost of green coffee beans.

Smucker Reports Higher Profits and Sales in Coffee

Last week J.M. Smucker results showed fiscal third-quarter sales were boosted by higher coffee prices. Smucker said that they would likely have to raise their coffee prices again if green coffee prices don’t recede from their current levels.

Though volume in the company’s coffee business fell two percent the higher coffee prices brought in a higher overall revenue. Smucker third-quarter revenue and profit both beat expectations causing the company to also increase its yearly sales outlook from three to four percent due to the higher prices.

The company’s retail coffee segment in the United States increased sales by eighteen percent and profits by nineteen percent. Last year Smucker rose prices thirteen percent. Today coffee costs about thirty percent more than it did in this quarter last year.

Anticipating a Coffee Price Increase 2011 – Concerns Over Arabica Coffee Shortage

More Coffee Price Increases in 2010-2011

Yuban and Maxwell House coffees that are produced under the parent company Kraft Foods hiked prices 9% on ground coffee as well as instant coffee.

In September of 2010 it was Peet’s Coffee & Tea raised prices in September, 2010 due to a 35% increase in the price of green coffee beans since the start of the year.

Buying Your Coffee Forward Not Likely

Though coffee price increases will likely continue into the future there is a strong disincentive to buy up stocks of the product now for future use. The reason for this is that once coffee beans have been roasted the fine flavors and aromas begin to degrade.

This is what prevents gourmet coffee lovers for stocking up on a year’s worth of coffee. Fresh-roasted coffee is best so the only way around buying your coffee in small amounts as you use it is to roast your coffee beans at home. While home roasting is becoming more common it is still too inconvenient for most people to buy green coffee beans and roast them at home as they need them (see home roasting).

Coffee Price Increase 2011 – Arabica Coffee Shortage

Coffee Shortage Fueled By Worldwide Coffee Demand Outstripping Supply

In 2012 it is estimated the demand for coffee will be exceeded by the supply by an amount of about five million bags of coffee. If this holds true expect higher coffee prices.

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{ 1 comment… read it below or add one }

Kisobulu uriah May 27, 2012 at 5:10 pm

Countries with favorable conditions for the growth of coffee should be encouraged to plant coffee so as to meet the expected demand.

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