Photo: Vincent Trivett
Coffee is about to crash.Well, at least that’s the view “shared by senior executives and traders, which for the last few months had been challenging the “blue sky” outlook laid by producers’ associations,” the Financial Times reports.
Earlier this year, everyone was sure that coffee prices were going to continue to climb, as a pound of beans was selling for more than $3 a pound.
The rise in prices of the worlds second most traded commodity was mainly attributed to growing coffee markets in Asia and Latin America, and producers looked forward to a new norm of sustained high coffee prices.
But traders and financiers, as articulated below by Dutch bank Rabobank (which lends heavily to the agribusiness industry) think coffee is just another boom-and-bust cycle, and if Brazilian output surges, the price of coffee could nosedive.
Rabobank says that Brazil, the world’s largest coffee producer, could boost its output by around 27 per cent by the 2014-15 crop year. If that happens, the cost of the commodity could plunge, as was the case after previous rallies in the 1980s and 1990s.
The bank estimates that the 50 per cent increase in the average price received by Brazilian growers in the crop year 2010-11 over 2009-10 could cause a rise in Brazil’s total area harvested from 2.09m hectares to as much as 2.45m hectares in four years.
In other words, when coffee priced doubled, Brazilian growers rushed to cash in and make as much as possible. Soon enough, there will be too much coffee out there.
The boom is already past. Coffee beans are already going for under $2.50 a pound. If Brazilian production goes up by as much as Rabobank expects, prices might still stay stable if growing consumer markets in emerging markets such as Brazil contine to grow or if this year’s heavy rain in Columbia depresses worldwide supplies.