UNITED STATES (March 16, 2011) – Market Report: Coffee prices have been rising, largely due to increased demand at a time of shrinking coffee supply.
Speculation by traders has also exacerbated the situation, and this was due to large infusions of money into commodity markets by investors seeking high returns in an economic climate of easy credit monetary policies by the U.S. Federal Reserve maintaining low interest rates.
Massive U.S. deficits and debt have led to a devalued U.S. currency that has further exacerbated coffee price increases for Americans.
Lower Yields By World’s Top Coffee Growing Countries
Lower coffee production in recent years by major coffee growing countries including Brazil and Vietnam as well as Colombia and other prime coffee growing regions of Latin America couldn’t come at a worse time because rebounding world economies and emerging markets are creating a rising demand for coffee.
Demand for Coffee Is Outpacing Supply
Plummeting coffee production is likely to turn around in a few years when the massive replanting programs being completed by numerous countries begins to come to fruition. However by that time the world’s demand for coffee will likely have increased as well so it remains to be seen if coffee demand will continue to outpace supply
That is little consolation, however, for coffee companies and consumers worldwide who have been feeling the pinch of higher coffee prices which began going up in earnest in the middle of 2010, surged toward the end of the year and continued rising in 2011.
Increasing Coffee Prices Report continued:
Inclement Weather Causing Lower Coffee Production in 2011
The primary reason for lower production is bad weather in coffee growing regions, mostly too much rain but also in some cases drought. Excessive rain in Brazil and Colombia damaged coffee crops as well as infrastructure and other regions of Central and South America have suffered as well.
Brazil is also in the off-year of biennial cycle of lower and higher production. Too much rain and high humidity have also led to increased coffee plant damage due to coffee plant diseases and pests including the devastating fungus called coffee leaf rust.
Last year Colombia produced 9 million 132-pound bags of coffee, down from more than 12 million in 2006. Vietnam is expecting coffee production this year of about 1.1 million tons, down from 1.3 million tons last year.
Disappointing Coffee Harvests Put Upward Pressure on Coffee Prices
Land pressures led to lower coffee production in western and central Kenya where plants were pulled up due to real estate pressures leading to a spike in the price of the renowned Kenya AA Coffee on the Nairobi Coffee Exchange.
The country of Tanzania saw a nine percent drop in production of coffee leading to a significant rise in the price of Tanzania’s esteemed AA Arabica grade coffee. The country has been doing massive replanting of coffee after suffering from a drought. Tanzania is perhaps best known for its robust and flavorful Tanzania Peaberry coffee.
Emerging Markets Driving Demand for Arabica Coffee
The growing middle classes of emerging economies including China, Brazil, India and Latin America have all been driving up the demand for Arabica coffee much faster than the two percent growth in the worldwide demand for coffee.
Coffee Prices Rising Due to Arabica Coffee Shortage in 2011continued:
China Sees Rapid Growth in Demand for Coffee
In China the demand has been going up as fast as twenty percent per year and Starbucks announced plans to open another one thousand stores there. In comparison, Starbucks will be opening about one hundred to two hundred cafes in the United States each year, after closing down 900 stores a few years ago due to the economic recession.
Brazil Will Surpass U.S. Coffee Consumption
Brazil is expected to be consuming more coffee than the United States by the end of 2012. It should be noted that the United States and Europe sustained their strong demand for coffee even during the years of the economic recession.
Still the emerging markets rapidly increased their demand during the last few years. Brazil will be keeping about half of its sizable coffee harvest by 2015 (Brazil’s crop is about 75% Arabica). It seems the world’s emerging market have developed a taste for fine, fresh-brewed Arabica coffee including specialty coffee drinks such as Lattes and Cappuccinos.
Coffee Price Increases Driven By Demand for Arabica Coffee
Arabica coffee plants are more sensitive to temperature and precipitation variations than the lower grade Robusta plants. Arabica coffee plants also need higher elevations to thrive and are more vulnerable to coffee plant diseases and pests.
Coffee brewed with Arabica coffee beans generally has a more delicate taste and also a lower caffeine content than Robusta. Arabica coffee is also more expensive.
Arabica Coffee Farmers Being Pushed to Higher Elevations
According to the International Coffee Organization the temperature in coffee growing regions has been slowly increasing over the last two decades, pushing Arabica coffee farmers to higher elevations where the plants will thrive.
Arabica Coffee Shortage in 2011 – Coffee Prices Rising continued:
Coffee Futures Up, Coffee Stockpiles Down
Since June of 2010 coffee futures have gone up more than eighty-five percent. Meanwhile world stockpiles are at an all-time low creating a tighter supply situation that will be more vulnerable to supply disruptions in the future.
Though much new planting of coffee has been undertaken in recent years as well as replanting unproductive fields, it remains in doubt whether the production of Arabica coffee in the next five to ten years will be able to keep up with the rise in demand. Many industry analysts have their doubts.
Demand for Coffee Outpaces Supply in 2011
The total coffee production worldwide in 2011-2012 is projected to be around 131 million 60-kilogram bags while demand will be nearly 135 million bags. Some industry analysts have estimated that coffee demand will outstrip supply by about thirty million bags in the next ten years unless coffee production increases at a faster rate.