Posted on: 2014-04-28 12:00 AM Since the end of January, coffee futures have jumped from around $1.20 a pound to trade near $2.16 a pound on Wednesday for July futures. Coffee prices have not been this high in more than two years.
The most recent leap came after coffee trader Volcafe cut its forecast for the size of the Brazilian crop due to severe drought. The trader estimates that production of arabica beans will drop by 18%. Brazil is the world’s largest supplier of arabica beans. The dry spell has wreaked havoc on this year's harvest of Arabica beans, which are used for the vast majority of global coffee production.
Coffee shops and roasters may want to start to hedge their next years purchases by looking around for cheaper coffee to create blends that might buffer the rising cost of that Arabica Coffee.
Including the lower grade robusta beans, world coffee production this year is expected to be short of demand by 11 million 132-pound bags. That is more than 725,000 tons. And that is a deficit equal to all the production of Colombia, the world-s second largest producer of arabica beans.
Roasters would be advised to consider hedging their supplies with any lower priced inventory that they can find or by adjusting their commitments and not making any long term commitments until prices start to fall again.
