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Coffee prices have jumped more than 25% in recent weeks, lifted by signs of shrinking production in Latin America.
Coffee futures have climbed to $1.173 a pound on the Intercontinental Exchange, surging from a recent low around 93 cents a pound in mid-October amid concerns of a supply glut. Prices soared a total of 12% over two trading sessions last week alone.
Prices are rising as inventories of coffee in ICE warehouses have dropped by nearly 78,000 bags in recent weeks, according to data from the ICE. Traders say a major reason for that is a slowdown in coffee harvesting out of Honduras, the third-largest producer of arabica coffee in the world, due to extremely dry conditions.
Grown largely in Latin America, arabica is a premium variety of coffee with a sweeter and softer taste than its cousin robusta. Although Honduras accounts for less than 10% global arabica production, it provides a key source of the supply certified by ICE and has a disproportionately high influence on futures prices, according to a Nov. 11 note from commodities brokerage Marex Spectron.
Last month, the International Coffee Organization forecast that world coffee production for the 2019-20 marketing year is expected to decline by 0.9%, to 167.4 million bags — or roughly 10 million metric tons. That is being driven by a 2.7% decline in arabica production, which is on pace to fall to 95.68 million bags. That would be the lowest production of arabica since 2015-16, according to ICO data. At the same time, coffee demand is expected to rise globally — with nations in Asia and the Pacific region projected to increase consumption by 3% in the coming year, while bigger consumers such as Europe are expected to grow by 1% to 2%.
An expanded version of this report appears on WSJ.com.
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