COFFEE GETS PRICIER AS ARABICA FUTURES JUMP
Highest level in more than four decades on global supply worries
Coffee futures extended their rampant rally to the highest in more than four decades in New York on global supply worries, threatening to further raise costs for consumers.
Arabica beans — the variety favoured for specialty brews — climbed as much as 3.9 per cent, hitting the highest since 1977. They've jumped almost 70 per cent this year.
A severe drought earlier this year in Brazil has fuelled worries about the country's output. That comes on top of concerns about another bean variety produced in Vietnam, after a key coffee belt was hit by dryness during the growing period and heavy rains arrived at the start of harvest.
The countries are the two biggest global coffee growers, with Brazil exporting mostly the premium arabica bean and Vietnam leading the market for the cheaper robusta.
The move is set to add to the pain facing cafés and roasters, ultimately boosting costs to consumers. Along the supply chain, sellers have raised prices and scrapped discounts to protect their margins. Nestlé SA, the world's biggest coffee maker, said in November that it will raise prices and make packs smaller to blunt the impact of more expensive beans.
“The rally is due to a number of complex circumstances,” including concerns about Brazil's output in the upcoming 2025-26 season, as well as shipping and logistical challenges, Co-operative Rabobank UA analyst Carlos Mera said.
Other factors are the uncertainty over the start date for the European Union's de-forestation rules and the front loading of sales to the U.S. ahead of potential trade tariffs under a Trump administration, he said.
Arabica was last up 2.6 per cent at US$3.17 a pound in New York, on course for a sixth-straight daily increase. The advance has pushed futures' 14-day relative-strength index well above 70, a level that can suggest that the market has become overbought.
Coffee growers in Brazil are not selling large volumes at the moment, broker Thiago Cazarini said. Producers have already sold a large percentage of the current harvest, and that leaves buyers with tight supplies until the next crop starting in May.
The recent arabica supply concerns come on top of several seasons of lacklustre crops not only in Brazil but also in other key coffee growing countries.
Second-largest arabica producer Colombia is still recovering from impacts of dry El Nino weather earlier this year, while recent heavy rainfall brought concerns over potential damage to crops in countries including Costa Rica and Honduras.
The increased costs of hedging — due to higher margin calls — and the possibility of producer defaults have contributed to panic buying recently, coffee trader Sucafina SA wrote this week.
This year's rally has been accompanied by fund managers holding large bets on higher prices. While speculators' net-long position in arabica is below a peak set earlier in the year, bullish wagers remain at a historically high level, Commodity Futures Trading Commission data show.
Robusta coffee, the more budget-friendly type used in instant drinks, has also soared this year, rising about 88 per cent in London.
In other soft commodities markets, raw sugar climbed on Wednesday, while cocoa edged down in New York.