Bottlenecks reduce supply: coffee prices rise to 10-year highs

Bottlenecks reduce supply
Coffee prices rise to 10-year highs

Coffee traders are also not spared from bottlenecks. For fear of ending up empty-handed, according to experts, companies are currently buying beans “just in case” – and are happy to fall back on futures. Not only does this drive up the price, it also affects farmers.

In view of supply bottlenecks and increased demand in the past year, companies and retailers are rushing to stock up on their coffee. As a result: The coffee prices on the futures markets have risen to a 10-year high, as reported by the “Financial Times”.

In order not to end up empty-handed, traders are currently using futures. In other words, on products with which they can secure deliveries at a certain price. As a consequence, stocks on one of the most important trading venues for coffee futures, the International Exchange, are decreasing. And that in turn drives future prices up, according to traders. The decline is “a very clear signal to the market that there is an ongoing immediate coffee shortage,” quoted the Financial Times as saying Ilya Byzov from the Swiss coffee trader Sucafina. The futures prices for the higher-quality arabica beans are now at 2.50 US dollars per pound, almost twice as high as they were in early 2021.

According to the Brazilian Council of Coffee Exporters, traders have difficulties booking containers and ships at the same time. In addition, shipping companies would frequently move loads. According to the Financial Times report, the volume of coffee exports fell by 24 percent compared to the previous year. Concerns about bottlenecks have led to purchases “just in case,” says Carlos Mera, an analyst at Rabobank. “If more coffee is stuck in transit, you need additional coffee supplies to meet demand.”

The sharp rise in bean prices has also led to hoarding by farmers, which is restricting the flow of exports and increasing price pressure. According to the US Department of Agriculture officials stationed in São Paulo, “outages” are increasing in which coffee farmers fail to comply with pre-agreed contracts in the physical market.

“The three largest Arabica producers, Brazil, Colombia and Ethiopia, are experiencing increased payment defaults where farmers fail to deliver the coffee at the agreed prices and try to resell it at the current higher prices,” the USDA writes in its latest report Brazilian coffee. Fears of another drought in Brazil also contributed to the rise in coffee prices.

The appearance of the La Nina weather phenomenon, which tends to be dry in the southern part of South America, has led to fears about low production volumes for the second year in a row – even though demand is unbroken. The southern part of Brazil saw less than normal rainfall, which continues to worry farmers, according to traders.

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