Coffee will trade at about $1.80 a pound until the end of 2012, a drop of 42 percent from a 14-year high last year, according to United Coffee, a private-label coffee maker and supplier to McDonald’s Corp. (MCD)
Prices are likely to be $1.80 to $1.90 a pound until the end of the year, said Per Harkjaer, United Coffee’s chief executive officer. Arabica coffee climbed to $3.089 in New York on May 3, the highest since 1997, as rains cut output in Colombia, the second-biggest grower of the variety, and the crop in top global producer Brazil entered the lower-yielding half of a two-year cycle, reducing production.
“The arabica prices, when they were at their maximum, they were not driven by coffee fundamentals,” Harkjaer, who is based in Geneva, said in an interview yesterday in London. “They were driven by investment speculation in commodities.”
Hedge funds and other large speculators held last year’s biggest net-long position, or bets on higher prices, in the week ended Jan. 14, data from the U.S. Commodity Futures Trading Commission show. Investors are currently net-short, or betting on lower prices, by the most since January 2009. Arabica coffee slid 20 percent in the first quarter, the biggest decline since 2000.
The price of robusta beans, traded in London, may fall by 5 percent to 10 percent by the end of the year as supplies increase, Harkjaer said. Robusta coffee prices have climbed 12 percent so far this year as farmers in Vietnam, the biggest producer of the variety, held back beans hoping for better prices.
“The firmness now in robusta prices is more supply than demand driven,” Harkjaer said. “I don’t think the robusta price is because of increased demand. If it was demand driven, the peak would have come much earlier, when arabica was at $3 a pound.”
Vietnamese farmers are holding 20 percent to 25 percent of the current crop, according to Volcafe, the coffee unit of ED&F Man Holdings Ltd. The nation will harvest a record 22.1 million bags in the 2011-12 season, the Winterthur, Switzerland-based trader estimates. A bag of coffee weighs 60 kilograms (132 pounds).
Coffee demand in Europe will be stable this year, as a move to single-serving portions reduces waste, Harkjaer said. Globally, consumption will be driven by developing countries, especially Brazil, he added. The South American nation could overtake the U.S. as the world’s biggest coffee drinker in five years, according to Rabobank International.
“When I grew up it was a big thermos on the table and half always went to waste,” Harkjaer said. “If you use Nespresso, for instance, you produce one cup at a time.”
While China isn’t yet driving coffee demand, the Asian country may at “some point” become more important as consumption increases due to the expansion of coffee shops there, he said. Starbucks Corp. (SBUX) plans a bigger push into smaller cities in China as the world’s largest coffee-shop operator triples stores in the country that will become its second- biggest market by 2014.
“We’ve just been bought by a Japanese company and Japan was traditionally a tea country,” Harkjaer said. “Demand there has been driven by the coffee companies,” he said, adding that the same move would happen in China.
Kobe, Japan-based UCC Holdings Co. said this week it will buy Geneva-based United Coffee for about 50 billion yen ($614 million), in the biggest acquisition the Japanese coffee maker has made so far. The purchase will enable UCC to enter Europe for the first time.
United Coffee’s sales grew by 5 percent to 62,000 metric tons last year and an increase of another 5 percent is forecast for this year, Harkjaer said. The company, which sources more than 50 percent of its beans from Brazil and Vietnam, supplies coffee to U.K. retailers Tesco Plc. (TSCO) and Waitrose Ltd., as well as McDonald’s in the U.K., Ireland and countries in Eastern Europe, he said.
“A lot of our growth comes from what we call out-of-home, which is non-retail, so these are things like McDonald’s,” he said, without providing a figure for how much coffee the company supplies to the world’s largest restaurant chain.
Coffee prices will remain high and volatile in the “long- term” as demand continues to increase, he said. The industry is likely to see “big consolidation” in the next five to 10 years as it becomes more difficult for small companies to manage price swings and to negotiate rates with large buyers, he added.
Arabica coffee is grown mainly in Latin America and favoured for specialty drinks such as those made by Starbucks. Robusta beans, used in instant coffee and espresso, are harvested mostly in Asia and parts of Africa.
Arabica coffee for July delivery traded at $1.7695 a pound on ICE Futures U.S. in New York by 9:32 London time. Robusta coffee for July delivery was at $2,024 a ton on NYSE Liffe in London.
To contact the reporter on this story: Isis Almeida in London at Ialmeida3@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2@bloomberg.net.