Live in the D: Uniquely Detroit—Detroit Coffee January 28, 2020
Faces: Nick Becharas January 28, 2020
A Spike in Coffee Prices is Brewing
"Coffee prices may rise to a six-year high in 2005 after outpacing major commodities this year, a Bloomberg survey found. Smaller crops in Brazil and the growing appetite for lattes may spur the increase.
The price of arabica coffee futures listed on the New York Board of Trade, the world's biggest coffee exchange, will average $1 a pound next year, based on the median estimate of 11 analysts and roasters. That's 30 percent higher than 2004. The futures are benchmarks for coffee sold by Procter & Gamble Co.'s Folgers and Kraft Foods Inc.'s Maxwell House brands.
Coffee futures jumped 60 percent this year, more than commodities including crude oil, sugar, copper and hogs. Suppliers were squeezed by rising demand from Starbucks Corp. and other buyers at the same time the outlook deteriorated for crops in Brazil, Vietnam and Indonesia. Those countries account for 48 percent of global coffee-bean exports.
"I wasn't a believer in this market until about two weeks ago," said Nicholas Becharas, president of Highland Park, Mich.-based Becharas Brothers Coffee Co., which sells about 2.5 million pounds of coffee a year to restaurants and the U.S. Navy. "The roasters are caught a little bit here and need to buy."
Coffee futures on Dec. 21 reached $1.087 a pound, the highest since July 2000. The 2004 average was 77.12 cents, up 23 percent from 2003. The contract for March delivery Thursday fell 4.2 cents to $1.0375 a pound, the last session of 2004. The peak in 2005 is expected to be $1.275, the median of 10 forecasts in the Bloomberg survey. Prices haven't been that high since December 1999.
Global coffee consumption this year reached an estimated 118 million bags, up 2.4 percent, German research company F.O. Licht said in a Dec. 23 report. Demand in the United States, the world's biggest coffee consumer, surged 9.2 percent in 2003, the latest figures available from the U.S. Agriculture Department.
Seattle-based Starbucks, the world's largest coffee-shop chain, boosted U.S. prices by 11 cents a cup in October, the first increase in four years. Sales at coffee shops open at least a year rose 13 percent in November, the biggest gain in nine months.
"It's a growing product in the U.S. because more people are looking for a better beverage," said Randy Layton, vice president of coffee operations at Portland, Oregon-based Boyd Coffee Co. "Beans that make up better coffee are becoming more difficult to find."
Dry weather may have contributed to reduced production in Brazil and Vietnam, said Michael McDougall, a trader at Fimat USA Inc. in New York. Vietnam's crop was 12.8 million bags in 2004, down 9.9 percent from a record 14.2 million bags in 2003, F.O. Licht said.
Brazil, the world's biggest grower of beans, will produce 30.7 million to 33 million bags next year, down from 38.6 million this year, the Brazilian Agriculture Ministry said. A bag of coffee weighs about 132 pounds.
Production in Indonesia probably fell 3.3 percent this year, the third-straight annual decline, to 5.8 million bags, the U.S. Agriculture Department attache in Jakarta said Nov. 22.
Coffee from Indonesia's Sumatra island was selling for $1.84 a pound before the Dec. 26 earthquake and resulting tidal waves, said Peter Longo, owner of New York-based coffee roaster and retailer Porto Rico Importing Co. "I would think after this catastrophe in the Indian Ocean, we may see Sumatran coffee at $4 or $5 a pound," he said.
Sumatra accounts for 71 percent of Indonesia's coffee production,
"All eyes are on Asia because of the floods," said Helmut Ahlfeld of F.O. Licht. But initial reports indicate there was no significant damage to the coffee industry, he said."
To view the full article click here.