Global coffee traders and roasters have significantly reduced their purchases due to soaring prices that retail stores are reluctant to accept. At the U.S. National Coffee Association annual convention in Houston, attendees expressed shock over a 70% increase in Arabica coffee futures since November on the ICE exchange.
Renan Chueiri, director general at ELCAFE C.A. in Ecuador, noted that this year marks the first time their instant coffee maker has not sold its expected annual production by March. Chueiri explained, "We would usually be sold out by now, but so far we sold less than 30% of production. The big price increase affects clients' cash flow, making it challenging for them to make necessary purchases."
Lower production in key coffee-growing regions, notably Brazil, has led to the surge in coffee prices. This has prompted cautious buying practices, as explained by a coffee broker who mentioned the shift to "hand to mouth" purchasing. Deals in Brazil are now carried out conservatively, with quality checks on-site before finalizing payments.
Despite predictions of a potential decrease in Arabica coffee prices by year-end, the industry faces uncertainty and challenges as high prices hinder demand. A U.S. roaster CEO highlighted the dilemma faced by some clients who question their ability to sustain business amidst price hikes and resistance from retail outlets.
Signs of strain are evident in coffee warehouses near U.S. ports, which are currently operating at half capacity due to reduced bean imports. Michael Von Luehrte of MVLcoffee suggested that the coffee market may see consolidation, with companies with stronger financial backing increasing trading volumes while others face financing constraints.
Furthermore, commodities trader Louis Dreyfus indicated at the conference that coffee cultivation is expanding in response to heightened prices in countries like India, Uganda, Ethiopia, and Brazil. The potential for a significant Brazilian crop, combined with increased planting in various regions, could lead to a price downturn.