Jump in the coffee bean prices set to filter for your morning infusion


A rise in green coffee prices may soon begin to percolate in the costs paid by consumers for their daily caffeine repairs, in the latest sign of how hot commodity markets are affecting the wider global economy.

The prices of coffee beans in international markets have risen since the crops in the first Brazilian producer were damaged by the the pawn dries in almost a century, leading to the first shortage of supplies in the coffee market in four years. Anti-government protests in Colombia it stopped exporting earlier this year, pushing markets further.

In early June, New York’s benchmark futures for arabica, the high-end coffee bean, hit a four-and-a-half-year high of nearly $ 1.70 a pound, up nearly 70 percent from a year earlier. Then, prices fell to about $ 1.50 a pound – still strong growth from 2020.

The devastating drought “really had a significant impact on the [coffee] culture this year, ”said Saxo Bank, head of commodity strategy, Ole Hansen.

Other raw materials such as iron ore, grain and oil are all higher this year, something economists say was falling toward the economy as a whole as producers raise prices that bill consumers.

Roasters and coffee buyers tend to have forward contracts with their suppliers that isolate them from price volatility for about three to nine months. The low demand for coffee from cafes and restaurants due to closures has also meant that they may even have some inventory on hand.

However, when these price agreements come to an end and the economy opens up, many roasters are trying to sign new purchase agreements at sharply higher bean prices, which can then be passed on to customers in supermarkets or cafes, they say. analysts.

“We still have coffee delivery from previous contracts. It’s the next delivery group that’s going to start to get more expensive,” said Stephen Hurst, founder of Mercanta, which sells specialty beans for high-quality roasters. “Wholesale and retail prices will start to react by the end of the year,” he added.

Martin Deboo, an analyst at Jefferies, said sales coffee prices in Europe had been stable for the first half of the year, indicating that roasters were still covered by forward price contracts with their suppliers.

But he said prices will likely begin to rise in the coming months: “As we spend the summer, people’s coverage begins to fall.”

There are some signs that higher prices are starting to reach the consumer. Tchibo, the German retailer, announced which will raise prices by 50 cents to € 1 a pound from this month, while JM Smucker, the US food company behind the Folgers and Dunkin ’coffee brands, he said was planning to raise prices in various categories, including coffee.

The graph of Arabica supply and demand columns and robust (millions of 60 kg bags) showing world coffee production is forecast to meet demand this year

For coffee growers, the increase in coffee prices comes on top of wages and other costs, which scale up. However, the cost of coffee counts a small part of a cappuccino or milk sold in a cafe, with rent and maneuver normally constituting more than half the cost.

Some roasters and coffee retailers can wait to see how the economic recovery unfolds and how consumer demand recovers before making a price move. While demand for coffee at home jumped in the middle of the blockade, it decimated sales for restaurants and cafes especially those that depend on office workers.

Nespresso, Nestlé’s premium coffee division, said that in the United States it was taking a wait-and-see approach and seeing how long high prices in the coffee bean market have been sustained.

On the supply side, while current Brazilian culture is forecast to be scarce, the country’s record collection in the previous season means producers and exporters also have inventories in stocks, said Carlos Mera, analyst at Rabobank , who added: “There is a lot of coffee in Brazil.”

However, large logistical bottlenecks caused by problems with shipping have led to producers and exporters hanging on to their inventories. The lack of containers and ships has caused a worldwide delay in cargoes of goods and other goods, and shipments that usually take four to six weeks for example, take twice as long, according to coffee traders.

“He’s a great boss,” Mera said. There is a lot of coffee waiting to be shipped from producing countries, where protests earlier this year have disrupted the flow of coffee, he added.

In Colombia, for example, it is expected that production will not be affected by the destruction of Covid-19, but because of national and international logistical problems, export flows “will need at least two months until things they are back to normal, ”said Roberto Velez, executive director of the Colombian Federation of Coffee Growers.

Uncertainty also persists about the consumer’s buying habits after the coronavirus crisis. Marex, the commodity broker, predicts post-pandemic coffee consumption will pick up this year, “but not to the pre-pandemic trajectory.” “The question is the big question mark.” It’s not as robust as some people think it is. It’s really mixed, ”said Merchant’s Hurst.

Chart the Column of Net Money Positions Managed ('000 Pending Contracts) showing the Hedge Funds' run in Arab futures

Meanwhile, traders are also keeping an eye on moves by hedge funds, which have piled up in the Arab futures market, exacerbating price growth. Although its positions have since fallen, data from the Commodity Futures Trading Commission show that financial speculators in early June accumulated a large long net position – a bet that prices will rise – equivalent to Colombia’s annual production. .

“Some of the drama we’ve seen in terms of price change has to be attributed to these huge capital inflows we’ve seen come from non-physical players,” Maximillian Copestake told Marex.

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