The Strategist

Arabica coffee prices rise to the highest since 2016

07/13/2021 - 06:48

The price of Arabica coffee in June reached the highest since 2016, with coffee futures rising by tens of per cent in three months. Among the reasons for the rise are the drought in Brazil, protests in Colombia and sharply increased shipping costs. So far, the price increase has not been passed on to consumers, but it could happen soon, experts warned.

Global coffee prices are rising and the price of Arabica beans rose in June to the highest since 2016, The Wall Street Journal wrote. Contracts for Arabica coffee on the New York exchange rose more than 18% in three months to $1.51 a pound (0.454kg). In London, the price of Robusta coffee increased 30% in three months to a two-year high of $1749 a metric tonne, the newspaper said.

Arabica is the main variety in Brazil, the world's biggest coffee supplier. The country has faced a severe drought this year, which WSJ calls one of the worst in almost a century. Local planters are preparing for one of the worst declines in production in almost 20 years, the newspaper claims. The drought also came in a year of reduced yields, with record harvests in 2020 and weaker harvests expected this year, the paper added.

The decline in coffee yields in Brazil this year could be the biggest year-on-year decline since 2003, the WSJ cited the US Department of Agriculture's estimate. It reckons the Brazilian Arabica crop will be 15 million standard bags of 132 pounds (about 60 kg) smaller than in 2020. Rabobank of the Netherlands expects the harvest to fall by 17 million bags, while broker ED&F Man, which owns Volcafe, one of the world's biggest coffee traders, predicts a drop of 23 million bags, The Wall Street Journal found out. 

Two other major coffee suppliers, Colombia and Vietnam, have a significantly better crop situation, but they have their own problems. In Colombia, protesters have blocked roads and ports, causing coffee to be stuck in storage. And Vietnam has been hampered by container shortages and sharply increased shipping costs, WSJ reported. Unlike other commodities, coffee is shipped around the world only in containers, Carlos Mera, head of agricultural market research at Rabobank, noted in a conversation with the paper. He also blames the rise in prices on investors who are actively investing in funds that invest in baskets of commodities.