Price of Coffee Has Been Percolating, Frothing, Boiling Over
United States (March 14, 2011) – Coffee Market Investor Report: The steady rise in coffee prices during the last year may continue into the future and investors continue to seek new ways to profit from the increase.
With low coffee stockpiles worldwide, poor coffee harvest in major coffee growing countries (e.g., Brazil, Vietnam, Columbia), increasing worldwide demand particularly in emerging markets, and hoarding of stockpiles by major coffee growing countries, don’t expect prices to ease soon.
Coffee Prices Hit Thirty-Four Year High and Continue Upward
Coffee prices are at a 34-year high and coffee futures prices have spiraled upward. These trends are expected to continue into the future due to fundamental changes in the supply and demand equation in the coffee markets.
Major coffee producers, roasters, retailers and coffee shops have raised prices in the last six months including J.M. Smucker Company (Dunkin’ Donuts, Folgers and Millstone brands), Starbucks, Green Mountain Coffee Roasters, and Yuban and Maxwell House coffees produced under the parent company Kraft Foods.
Lower Coffee Production Puts Upward Pressure on Coffee Prices
The world’s three largest coffee growers are Brazil, Vietnam and Colombia producing respectively 38, 14.5 and 12.3 percent of the world’s coffee.
All three countries have had extensive crop damage due to inclement weather as well as coffee pests and diseases such as fungus and coffee leaf rust often exacerbated by excessive rains.
Worldwide Coffee Demand Growing Causing Increased Coffee Prices
During the last ten years the demand for green coffee beans (unroasted coffee beans) has grown at a rate of about 2.5% per year, rising to 135 million 60-kilogram bags today from 100 million bags in 2000.
The high demand for coffee in Europe and America was sustained during the economic recession, while emerging markets saw a much faster increase in demand than the world average.Coffee Prices in 2011 – How to Profit from the Coffee Price Increase continued:
Emerging Economies Are Primary Drivers Of Rising Coffee Prices
In India demand for coffee is estimated to be rising at about five percent, and in Brazil about seven percent. Brazil will likely exceed the U.S. in coffee consumption next year and by 2015 will be keeping more than half of its total coffee harvest.
In China coffee demand is surging at a rate estimated to be about twenty percent annually in the last few years. Like other emerging markets, China has a large and growing middle class with more disposable income and they have taken a liking to fresh-brewed whole bean Arabica coffee including a variety of specialty coffee drinks such as Lattes and Cappuccinos.
From 2005 to 2009 Starbucks was able to triple sales in China and currently has plans to open 1,000 new stores in the country. Starbucks has an estimated 70% market share in China’s coffee market, and the company also has plans to begin opening stores in India.
Coffee Prices in 2011 – Understanding the Coffee Market
Coffee Prices Inelastic With Respect to Price Increases
The demand for coffee seems to grow worldwide despite economic conditions, and in countries doing well economically coffee demand rises more rapidly. If the economies of the U.S. and Europe continue to rebound there may be increasing demand for coffee as a result.
Despite a string of coffee price increases my major companies, people continue to buy coffee including the higher priced Arabica coffee bean varietals which are most in demand and having the biggest problems with supply.
Making a Profit from the Increase in Coffee Prices
How you may be able to invest wisely and gain benefits from rising coffee prices depends upon where you are.
Europeans may explore opportunities on the London stock market including the exchange-traded fund (ETF) equivalent traded on the London Stock Exchange that will let you bet long or short on coffee based on the USB-DJ Coffee sub index.
Americans may buy shares in the iPath Dow Jones-UBS Coffee Subindex Total Return Exchange Traded Note (ETN).
Coffee Prices Likely to Continue High Levels Into 2012
With Brazil in an off-year of production and Colombia in its third straight year of lower production, most analysts see no relief in sight for high coffee prices.
Worldwide there is a particular shortage of the higher grade Arabica coffee beans which are in demand by the specialty coffee market which includes high end coffee chains like Starbucks and Peet’s and major coffee roasters and retailers like Green Mountain Coffee Roasters.
Tips on How to Profit from the Coffee Price Increase continued:
Declining Dollar and Low Interest Rates Contributing to Rising Coffee Prices
Americans are also seeing higher coffee prices due to the declining value of the U.S. dollar, which has the effect of creating higher commodity prices.
Also driving up coffee prices has been the low interest rates maintained by the U.S. Federal Reserve which has led to large amounts of investor money in commodity markets, which has had the effect of further driving up coffee prices.
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