Coffee Prices and Coffee Futures Reaching New Highs in 2011

by Daniel Harrington on February 22, 2011

UNITED STATES (Feb. 21, 2011) – The international coffee market is attaining new price peaks in the near term due to speculation buying as well as a tight current coffee bean supply. Meanwhile coffee futures have doubled in the last year and pressures are coming from both the supply and demand sides.

Currently Arabica coffee prices in Intercontinental Exchange (ICE) Futures sit at $2.72/pound (March delivery) which is a 14-year high. The lower quality Robusta coffee futures for March delivery (in Liffe futures) sits at $2,290/tonne.

Two of the world’s largest Arabica coffee producers – Brazil and Colombia – have coffee supply concerns that are rippling through the markets. The near term price for Arabica is expected to hit $2.90 by many analysts’ estimates.

However the current speculation buying coupled with countries holding back their green coffee bean stocks for sale in anticipation of higher prices has also led to the general belief that Arabica prices will see a correction in the next half to three-fourths of a year.

Robusta coffee prices are also considered to climb gradually due to overall higher coffee consumption levels as well as speculation buying of Robusta along with Arabica. Prices of Robusta are expected to climb to around $2,400 per tonne in the next quarter and then likely see a correction.

Helping to elevate coffee prices along with supply and demand issues is the decreased current inventory levels of green coffee stocks which were severely depleted last year worldwide including stocks registered with New York’s coffee exchange.

Also reaching a 14-year high is the difference in price between Robusta and Arabica coffee.

While this encourages coffee farmers to switch to growing Arabica from Robusta, it is more difficult to grow Arabica (e.g., labor, coffee pests, etc.) and Arabica also takes longer to begin producing (about five years) so any plantings that do occur will take some time to have an effect on the coffee market.

The combination of poor coffee harvests and a growing demand for coffee overall along with an even more rapidly growing demand for high quality Arabica coffee. This is largely attributed to the growing middle classes of Brazil, India, China and other emerging markets where demand for Arabica coffee is increasing much faster than the global average.

In addition to the poor harvests in Colombia and Brazil numerous other countries have experienced lower harvests recently including Mexico, Panama, Kenya, Vietnam and India.

While some other countries are increasing their coffee production this is generally not enough to offset poor years by the largest coffee growers such as Colombia which is now enduring its third disappointing harvest.

The world’s coffee markets have been undergoing a fundamental shift during the last two years as the surging demand for coffee in emerging markets at the same time there is an Arabica coffee shortage. The new breed of gourmet coffee lovers prefers fresh-brewed whole bean Arabica coffee and they also like specialty coffee drinks including Lattes and Cappuccinos.

This Arabica coffee in particular has been shown to be rather inelastic to price increases which means that the imminent price hikes at coffee shops and on grocery store shelves for fine coffee are not likely to deter consumers, and thus higher prices will likely not ease supply concerns.

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{ 1 comment… read it below or add one }

Zavrina July 13, 2011 at 8:57 am

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