SATURDAY, NOVEMBER 27, 2010
Caffeine Hangover: Heading for a Real Jolt
By MAJA WALLENGREN
Lower coffee supplies could soon zap consumers in the pocketbook
AND YOU THOUGHT STARBUCKS' prices were already off the charts. World coffee supplies are moving into deficit, and with futures trading at 13½-year highs for arabica beans, the world's most popular coffee, consumers could soon get a price jolt, along with their doubleshot.
"This market is extremely vulnerable to a major price spike. A minimum 10-cent jump for a cup of coffee is very realistic," says commodities analyst Judith Ganes-Chase, who runs J. Ganes Consulting. This could happen as early as the first quarter, with futures seen reaching a target of $2.75 per pound. Arabica futures have recently been trading at $2.00 to $2.10 per pound.
What's more worrying for consumers and major roasters such as Starbucks (ticker: SBUX) and Kraft Foods (KFT) is that Brazil, the world's largest producer, will start harvesting a smaller-than-normal crop by April next year. This will occur just as global coffee stocks in importing countries will be nearly depleted, and the only source of fresh supply will be from producing countries in no urgent need of selling.
"The arabica supply rests on a very delicate balance, or even a deficit," says Marco Ruttimann, a partner in Coffee-Link International, a Miami brokerage.
U.S. coffee retailers and roasters are already under pressure from a 50% price increase since August for green un-roasted beans. But consumer prices in the same period rose only about 20%, says Brazilian coffee trader Christian Wolthers, who works for U.S. arabica importer Wolthers America.
"The situation is chaotic, and I can't see any relief in the next 18 months," says Wolthers. Bottoms up.
-MAJA WALLENGREN is an independent commodities reporter based in Mexico City.
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