By Tom Sellen
The Wall Street Journal
August 30, 2010
KANSAS CITY, Mo.—Coffee futures remain close to a 13-year high, as tight supplies and the prospect of dry weather hurting next year's Brazilian crop have sent roasters scrambling to secure beans.
Roasters are looking for top-quality arabica coffee beans, and supplies from Colombia—the largest producer of the beans—and Central America won't begin hitting the market in earnest until November and December. Brazil is on pace to harvest a record crop this year, though global demand is also strengthening.
December coffee futures reached a 13-year high of $1.8865 a pound last Monday, as speculative investors jumped into a market that already was rising as coffee roasters fretted over inadequate supplies. Prices then dived the next day as investors questioned the steep gains and as Brazil's possibly record-setting crop eased supply fears.
Since then, the market has gradually clawed its way back. On Friday, coffee for nearby September delivery on ICE Futures U.S. gained 4.2% to $1.7705 a pound.
Rallying prices have forced U.S. roasters J.M. Smucker Co., maker of Folgers coffee, and Kraft Foods Inc., maker of Maxwell House, to raise prices by 9% to 10%. The world's largest coffeehouse retailer, Starbucks Corp., said it will absorb increased costs of four cents a share due mainly to the high coffee values and didn't plan to raise retail prices.
Supply concerns are centered on Colombia's output, which was cut 30% last year by adverse weather that also reduced Central American supplies. Coffee production in these areas is expected to rebound this year, though supplies will remain tight until later this fall.
In the meantime, roasters continue to whittle down stockpiles. Coffee stocks in ICE-approved warehouses have shrunk 35% since the beginning of the year, and global exports were down 14% in June to 7.8 million of 132-pound bags. A year earlier, exports totaled 18.5 million, according to the London-based International Coffee Organization.
Despite a large crop in Brazil, near-term supplies will be just enough to meet demand, keeping prices high, said Nestor Osorio, executive director of ICO.
The success of Brazil's second crop may hinge on whether dry weather and higher-than-normal temperatures persist, brokers said.
Dry conditions stress coffee bushes, actually helping to boost flowering. But rains are then needed to develop the fruit after the flowering period, said Judy Ganes-Chase, coffee analyst and president of J Ganes Consulting in Katonah, N.Y.
"If it's just dry ... then it's not going to be an issue," she said. "What's bad is when you get heavy rains and then it turns dry and stays dry." She added that the hot, dry weather is so far not a concern for Brazil's coffee growers.
Brazil's main coffee-growing regions are likely to see mainly hot, dry weather until heavy rains reappear in October, Celso Oliveira, a meteorologist at private weather service Somar, said Friday.
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Contact Tom Sellen at tom.sellen @dowjones.com
The Wall Street Journal
August 30, 2010
KANSAS CITY, Mo.—Coffee futures remain close to a 13-year high, as tight supplies and the prospect of dry weather hurting next year's Brazilian crop have sent roasters scrambling to secure beans.
Roasters are looking for top-quality arabica coffee beans, and supplies from Colombia—the largest producer of the beans—and Central America won't begin hitting the market in earnest until November and December. Brazil is on pace to harvest a record crop this year, though global demand is also strengthening.
December coffee futures reached a 13-year high of $1.8865 a pound last Monday, as speculative investors jumped into a market that already was rising as coffee roasters fretted over inadequate supplies. Prices then dived the next day as investors questioned the steep gains and as Brazil's possibly record-setting crop eased supply fears.
Since then, the market has gradually clawed its way back. On Friday, coffee for nearby September delivery on ICE Futures U.S. gained 4.2% to $1.7705 a pound.
Rallying prices have forced U.S. roasters J.M. Smucker Co., maker of Folgers coffee, and Kraft Foods Inc., maker of Maxwell House, to raise prices by 9% to 10%. The world's largest coffeehouse retailer, Starbucks Corp., said it will absorb increased costs of four cents a share due mainly to the high coffee values and didn't plan to raise retail prices.
Supply concerns are centered on Colombia's output, which was cut 30% last year by adverse weather that also reduced Central American supplies. Coffee production in these areas is expected to rebound this year, though supplies will remain tight until later this fall.
In the meantime, roasters continue to whittle down stockpiles. Coffee stocks in ICE-approved warehouses have shrunk 35% since the beginning of the year, and global exports were down 14% in June to 7.8 million of 132-pound bags. A year earlier, exports totaled 18.5 million, according to the London-based International Coffee Organization.
Despite a large crop in Brazil, near-term supplies will be just enough to meet demand, keeping prices high, said Nestor Osorio, executive director of ICO.
The success of Brazil's second crop may hinge on whether dry weather and higher-than-normal temperatures persist, brokers said.
Dry conditions stress coffee bushes, actually helping to boost flowering. But rains are then needed to develop the fruit after the flowering period, said Judy Ganes-Chase, coffee analyst and president of J Ganes Consulting in Katonah, N.Y.
"If it's just dry ... then it's not going to be an issue," she said. "What's bad is when you get heavy rains and then it turns dry and stays dry." She added that the hot, dry weather is so far not a concern for Brazil's coffee growers.
Brazil's main coffee-growing regions are likely to see mainly hot, dry weather until heavy rains reappear in October, Celso Oliveira, a meteorologist at private weather service Somar, said Friday.
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Contact Tom Sellen at tom.sellen @dowjones.com
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