Coffee prices are at 34-year highs, and could be heading even higher this summer as inventories are depleted and not fully replaced. Brazil, the top coffee-producing country, is anticipating a small harvest, and Colombia and Central America are expected to produce less coffee, as well.
“The coffee isn’t there, and the market is facing structural deficits [related to] the nature of the coffee trees,” says Eric Nadelberg, senior vice president, Investments, and the Head of the institutional coffee desk at Prudential Bache Commodities. “That means supply can’t respond as aggressively as the market is requiring. I don’t see any replenishing of supply in the next three years.”
“Coffee prices, particularly those of Arabicas, reached new highs in April. The monthly average of the ICO composite indicator price in April was 231.24 compared to 224.33 US cents/lb in March 2011, the highest monthly level recorded since June 1977. On the other hand price volatility decreased compared to March. At this time of the year the market traditionally starts speculating about the possible risk of frost in Brazil during winter. However, changes in the location of Brazilian production in recent decades mean that the risk of frost has diminished considerably. Speculative movements driven by the precarious balance between supply and demand accentuated the firmness in Arabica prices during April.”
International Coffee Organisation April 2011