United States (March 6, 2011) – Commodity Market Report: Last week oil prices rose nearly seven percent, climbing to $104 per barrel largely due to the political unrest in Libya and continued uprisings in North Africa and the Middle East. Oil prices are at their highest since September of 2008.
Political Unrest Drives Up Commodity Prices including Coffee and Oil Prices
The continued uncertainty of the oil supply situation has made the oil market increasingly volatile in recent weeks due to the unrest in oil-producing nations.
In Libya alone the world market is now short about 1 million barrels per day. Libya’s average production in 2010 was about 1.6 million barrels each day.
The pressure on prices was somewhat eased by an assurance from the Organization of Petroleum Producing Countries (OPEC) that they will be able to increase their own oil production in order to make up for the oil production being lost due to the problems in Libya.
Consumers in the United States have seen the price at the gas pumps spiral upwards with no end in sight as oil prices continue to move up rapidly on world markets.
Coffee and Oil Amid a Range of Commodity Prices Increasing
Coffee Production Suffering from Disappointing Harvests – Causing Coffee Price Increases
Meanwhile world coffee supplies continue be affected by disappointing harvests from the world’s top coffee producers including Brazil and Colombia.
In Brazil the excess rains have thwarted the coffee plant flowering phase, while Colombian coffee harvests have also fallen victim to inclement weather as coffee prices reached a fourteen-year high on world markets.
Brazil is the largest coffee producer in the world so even a small decline in production can have a significant effect on the world market for coffee. While Brazil typically produces between 45 and 50 million 60-kg bags of coffee each year, last year’s coffee production was below 40 million bags.
Commodity Price Increases in 2011 Led by Oil and Coffee Commodities Spiraling Upward continued:
Continued Poor Coffee Harvest Leading to Higher Coffee Prices
Colombia has endured a few years of disappointing coffee harvests, and while the country typically can produce about thirteen million bags of coffee the production last year was only about ten million bags.
Coffee companies have announced a series of price increases in recent months and these are likely to continue. For example last week Nescafe rose the price of its instant coffee products in the Philippines and is paying nearly double for (coffee beans than it was one year ago.
Commodity Price Increases in 2011 – Coffee Price and Oil Price Rises are Leading the Way
Vietnam Sees Lower Coffee Production
Vietnam is another top world coffee producer seeing lower production due to inclement weather including excessive rains. Coffee production in Vietnam is expected to dip to 1.1 million tons this year, down from 1.3 million tons the previous year.
In the Philippines, on the other hand, a drought beginning in 2009 devastated many coffee plants. Last year’s coffee output in the Philippines was about 40,000 tons, down from about 72,000 tons being produced by the country annually in the 1980s.
The drought is expected to continue to reduce production in the Philippines which may decline to 27,000 tons. Meanwhile coffee consumption in the Philippines is growing at about three percent annually putting further pressure on supplies.
Brazil’s coffee consumption is increasing at a much faster rate and the country is expected to surpass United States coffee consumption in 2012 and by 2015 Brazil is expected to be keeping about half of its own coffee crop in order to meet internal demand.
Commodity Price Increases in 2011 Being Led by Oil and Coffee Price Rises Spiraling Upward
Fundamental Structural Change in Commodity Markets Driven By Demand from Emerging Markets
Commodities including coffee have been affected by a fundamental structural change in the world markets due to the emerging economies of China, India and Latin America among others, and their large middle classes that continue to grow and buy more products.
In the coffee market, for example, these countries now provide stiff competition for the finest coffee beans typically purchased by Europe and the United States.
This has caused a shortage of the higher quality Arabica coffee that is desired by many who have taken a liking to gourmet coffee and espresso as well as espresso coffee drinks such as a cappuccinos and lattes.
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