Global coffee traders and roasters have drastically reduced their purchases. The industry is struggling with a sharp increase in prices. Suppliers haven’t been able to convince retail stores to accept these higher prices yet.
Attendees at the U.S. National Coffee Association annual convention in Houston this week were shocked. Arabica coffee futures on the ICE exchange, a global benchmark, have increased by 70% since November.
Renan Chueiri, director general at ELCAFE C.A. in Ecuador, said this year is unprecedented. His instant coffee company hasn’t sold all its expected annual production by March for the first time.
“We would usually be sold out by now, but so far we sold less than 30% of production,” he said. “The big price increase eats clients’ cash flow, they don’t have all the money to buy what they need.”
Lower production in key coffee-growing regions, especially Brazil, has caused the coffee price hikes. This has reduced the availability of beans.
One anonymous coffee broker stated, “Nobody wants to be exposed, nobody is buying for future delivery, it is all hand to mouth.”
He explained that “hand to mouth” refers to buying only what is immediately needed, avoiding stockpiling.
He added that recent deals in Brazil have been very cautious. “You close a deal, and then you have seven days to go to the farm or warehouse and get your coffee. You check the quality, and if it is ok, you make the payment on the site and drive away with the coffee.”
A recent Reuters poll predicted a potential 30% drop in Arabica coffee prices by year’s end. High prices are curbing demand, and early signs indicate a large Brazilian crop next year.
However, the coffee industry faces significant challenges until prices fall considerably.
The chief executive of a major U.S. roaster stated some clients are unsure if they can continue operating. The United States is the world’s largest coffee market.
“They don’t know if they will be able to sell their product at the new prices,” he said, also requesting anonymity. “Some people are going down”.
The CEO noted that supermarkets and grocery stores are resisting the roasters’ higher prices. Negotiations are prolonged, and some retail outlets are experiencing coffee shortages on their shelves.
“It has been a nightmare,” he added.
An executive for a major storage company said coffee warehouses near U.S. ports, which receive beans from Central and South America, are at half their normal capacity.
“Some storing companies are returning silos to the owners, canceling leasing contracts early,” he said.
Michael Von Luehrte, owner of broker MVLcoffee, believes the coffee market, especially trading, might consolidate.
Companies with more capital will increase trading volumes. Meanwhile, others will struggle with reduced financing, he added.
Commodities trader Louis Dreyfus said the coffee planted area has been expanding in response to the higher prices. This was during a presentation at the conference.
Expansion has occurred in countries like India, Uganda, Ethiopia, and Brazil. The company believes that a large Brazilian crop, combined with the new planted areas, could lead to a price collapse.
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