Coffee Prices Hunt Peak

US Coffee Futures (Daily chart), for April 13, 2014 - coffee prices

US Coffee Futures (Daily chart), for April 13, 2014

How much do you enjoy that lunch break cappuccino, americano or espresso? Well, in future, you may have to be prepared to pay more for that all-in-important caffeine fix at your favourite coffee chain outlet.

This week, commodities continued to attract investors while bucking the down trend of the stock exchange, and, of these, coffee was a spectacular performer.

Coffee prices (arabica beans) climbed to $2.07 ( £1.23) per lb on Thursday, its highest listing since February 2012. The price of arabica beans climbed 20 per cent on the week, and shows an 70 per cent leap from the end of 2013.

Of course, the arabica bean is the favoured coffee source of the large retail chains such as Starbucks, Costa Coffee and Caffe Nero. Coffee culture is a growing trend and expansionist policies are still being followed by multi-national chains like Starbucks and Costa Coffee (owned by the Whitbread group). For the major coffee chains, the data shows a clear trend upward in coffee prices. A fact, that will have their analysts reaching for calculators to estimate a new pricing structure for their coffee products to meet bottom line expectations.

An extended period of drought in Brazil, the world’s largest coffee producer, has increased fears of continued shortage. A predicted harvest of just over 50 million bags falls way short of a projected 56 to 57 million bags. Global demand of 146 million bags will be missed and an expected return of under 140 million bags will mean demand outstripping supply by a considerable margin.

Some economists have speculated that the price hike will not last, while other analysts are confident of a prolonged period of coffee price increases. The data favours the latter.

Meteorologists are predicting that there is more dry weather to come, which, in turn, builds in fear of disease, undermining some economists’ view that this a blip. Some analysts are now forecasting an extended period of coffee price increase, a view supported by the International Coffee Association.

Commentators now expect the coffee price to reach $3 (£1.80) per lb. All good news for investors prepared to get in early.

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