Coffee lovers should prepare themselves for their favourite brew to become more costly as arabica beans, used to make espressos and cappuccinos, rose to a new 26-month high this week.
The arabica price jumped as Brazilian production figures from Volcafe, a leading Switzerland-based coffee trader, showed a sharp downward revision in production numbers for the 2014-15 crop on the back of the drought in the South American country.
Volcafe, which is part of soft commodity specialist ED & F Man, revised down its Brazilian arabica supply forecasts to 28.4m bags of 60kg per bag.
As a result, it now expected an 11m bag deficit for the overall coffee market for 2014-15.
“The recent unprecedented weather has affected both the 2014-15 and the 2015-16 crops,” said the trader, warning that “even under the most optimistic scenario for the 2015-16 Brazil crop, we expect a second consecutive coffee market deficit”.
Although traders and analysts have been braced for lower production numbers in Brazil after the unprecedented drought and heat at the start of this year, the estimates are among the first to be made public by a leading performer in the coffee industry.
Earlier this month, the International Coffee Organization, the intergovernmental group representing coffee growing and consuming countries, said it was difficult to estimate the extent of the damage until the crop was harvested.
Nevertheless the ICO referred to a study by Brazilian agronomist and coffee grower Alemar Braga Rena, who has described the weather as “the largest climate anomaly since the ‘Black Frost’ of 1975” and warned that “damage to the 2015-16 crop could be even worse”.
ICE July coffee jumped $2.19 a pound midweek, the highest level since February 2012, after the report was released, before ending the week at $2.094, up 2.6 per cent on the week.
The market has risen more than 85 per cent since the start of the year, making it the leading gaining commodity so far this year.
What is also worrying for coffee buyers and roasters is the sharply lower stocks to use ratio, a measure showing the relationship between inventories and demand.
By the end of the 2014-15 season, Volcafe forecasts the ratio to fall below 14 per cent, the lowest number since 1999, the earliest verifiable data on record.
That is less than half of the average stock to use ratio in the past 15 years of 35 per cent.
Although the inventory numbers for the season at 40m bags are higher than the 38m bags recorded in 2009-10, demand has grown by 15m bags since then.
One piece of good news from Volcafe was that it revised up the estimates for the lower grade robusta beans, from 16.1 to 17.1m bags thanks to improved yield expectations.
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