Illycaffe CEO Says Coffee Up to 50% Overvalued Amid ‘Bubble’
Coffee in New York is as much as 50 percent overvalued as speculators drive up futures prices, helping inflate a global commodities “bubble,” Illycaffe SpA Chief Executive Officer Andrea Illy said.
A more “reasonable” price for coffee would be between $1.80 and $2.20 per pound, Illy said today in an interview in Sao Paulo. Coffee could fall to as low as $1.50 a pound should output increase and global stockpiles rebound, he said.
Futures, which rose to $2.9665 a pound on March 9, the highest since May 1997, more than doubled in the past year on concern rising world demand will outpace supply amid adverse weather in Latin America, the main grower of arabica coffee. Farmers in Brazil and other producing nations may seek to boost output to take advantage of higher prices, according to Illy.
“Coffee is trapped in the middle of a huge commodities speculation,” said Illy, who heads the company founded by his grandfather in Trieste, Italy, in 1933. “We are now in a bubble for all commodities, and the bubble will burst for sure.”
Global output may rise 10 percent in the next crop year as growers are encouraged to invest more in their crops, Illy said. Still, consumer demand may slow to 1 percent this year from 1.5 percent in 2010 on higher costs, he said.
Price ‘Correction’
Rising output combined with slower consumption growth “may create already next year conditions for a significant correction in the pricing,” he said.
Illycaffe may pass on rising costs to consumers this year even after boosting prices by 10 percent last year, Illy said. The increase may take place in the June, July or August period, when the company purchases its beans from producers, he said. Brazilian beans account for half of the company’s blends.
Brazilian production of the commodity this year will probably be between 45 million and 47 million bags, the highest crop in a low-yielding cycle, compared with a record crop of 55 million bags last year, he said.
Brazil may harvest between 41.9 million bags and 44.7 million bags this year, compared with 48.1 million bags last year, the Agriculture Ministry said on Jan. 6. One bag of coffee weighs 60 kilograms (132 pounds).
Arabica coffee for May delivery advanced 5.05 cents, or 1.9 percent, to $2.7205 a pound at 11:59 a.m. on ICE Futures U.S. in New York. Robusta coffee for May delivery rose $117, or 4.7 percent, to $2,604 a metric ton on NYSE Liffe in London after reaching $2,615, the highest level since March 13, 2008.
To contact the reporter on this story: Katia Cortes in Brasilia Newsroom at kcortes@bloomberg.net
To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net
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