Coffee Gets More Expensive as Supply Ebbs Amid Buoyant Demandby
Colombia strike adds to supply concerns in Asia, Brazil
Prices could double as inventories dwindle, Hackett says
Prices for arabica beans, the type favored by Starbucks Corp., reached the highest in more than than 16 months in New York as crop risks across Asia and Latin America raise concern that global supplies will get tighter just as global consumption is set to reach an-all time high.
A trucker strike has hindered coffee shipments in Colombia the past month, increasing the risk that beans will be damaged in the world’s second-largest producer, growers said. Adverse weather last month hurt arabica crops at top producer Brazil, where the robusta harvest in the main growing region will slide to the smallest in 12 years, a producers’ group estimates. Smaller harvests are also expected in top robusta supplier Vietnam, as well as Indonesia and India.
By the end of 2016-17 season, global stockpiles will be the smallest in four years, the U.S. Department of Agriculture projects. This includes shrinking reserves in Colombia and Vietnam while Brazil will have the equivalent of less than one month of supplies to meet domestic consumption and exports. At warehouses monitored by ICE Futures U.S., stockpiles have fallen 25 percent this year to near the lowest since April 2011.
“Prices continue to benefit from a positive demand outlook in spite of risk events in the U.K. and Europe that have rattled other commodities,” David Hightower, founder of Chicago-based Hightower Report, said in a note Monday. ICE’s slumping inventory ‘‘reflects a positive global demand outlook.”
Arabica coffee for September delivery jumped 3.6 percent to settle at $1.493 a pound on ICE in New York after touching $1.4995, the highest for a most-active contract since Feb. 25, 2015. The price has climbed 18 percent this year, also boosted by a stronger Brazilian real. In London, robusta for September delivery rose 1.8 percent to $1,829 a ton on ICE Futures Europe after touching $1,799, the highest since March 24, 2015.
Shrinking producer inventory leaves no room for further supply disruptions and should “Mother Nature worry the market sufficiently,” prices could double to $3 by the first quarter next year, Shawn Hackett, president of Hackett Financial Advisors in Boynton Beach, Fla., said in a report. Money managers are the most bullish on arabica coffee since December 2014, government data showed last week.