COFFEE PRICES

As the aroma of the freshly brewed Coffee reaches markets such as China, and consumption rises in producing countries like Brazil, the Global Coffee industry is seeing a Boom that could reshape the market and lead to higher prices.

For hundreds of year, poor farmers in Africa and Latin America have grown Coffee beans to satisfy the daily caffeine needs of consumers in the US, Japan and Western Europe.

While the traditional markets remain central to the industry, markets in Asia, Africa and Latin America are now becoming very important.

It is clear that Coffee market is at a turning point, as demand in Western Europe and the US is leveling out, and consumption in emerging markets is on the rise, especially in the Coffee-producing countries.

Brazil is an exxample of the trend. Already the largest Coffee producer in the World, it is set to become the biggest Coffee consumer next year.
The Brazilian Coffee Industry Association (ABIC) forecasts that domestic demand will Top 21M bags, of 60kg each, in Y 2012, which is up 50% in the past decade and surpasses that of the USA.

“The World of Coffee consumption is changing,” says Nathan Herszkowicz, ABIC executive director. “Brazilians are drinking more Coffee every day too.” And other emerging markets, particularly in Asia, are “shifting from tea into Coffee”, he adds.

The rapid increase in demand from emerging countries, which echoes other commodities markets such as Crude Oil and Copper, is one of the main reasons for the rise in the speculative investment in Coffee, according to analysts and traders.

The rise in demand has an impact beyond the industry. For years, Coffee has been a niche commodity market, largely handled by roasters and trading houses. But lately less specialist players have gained exposure through popular commodities indices.

This week the cost of Arabica Aoffee, the high-quality bean appreciated by Espresso connoisseurs, hit its highest level in 34 yrs, above US$3 lb. Arabica Coffee prices have risen 125% in the past year, forcing retailers to raise prices.

JM Smucker (NYSE:SJM), the US company behind the popular Folgers brand and a trendsetter, has raised retail prices 3 times during the past year, totalling a 23% rise.

Unlike the previous four Big rallies of the coffee market in Y’s 1975-77, 1985-86, 1994 and 1997, which were triggered after frost hit Brazil’s Coffee belt, the current high has broader reasons.

Supplies are running low in a larger number of countries, particularly in Colombia, a Top producer of premium Arabica beans, while demand in producing countries such as Brazil, Indonesia, Mexico and Ethiopia is on the rise.

As important as the rapid increase in producing nations’ consumption is the arrival of the Coffee culture to Asian countries such as China.

Coffee shop chains consider the region a top priority. Howard Schultz, Starbucks (NASDAQ:SBUX) CEO, says he is seeing the morning Coffee ritual take hold in China, confirming plans to triple the Company’s number of stores there to more than 1,500 by Y 2015.

According to the International Coffee Organisation, Global demand for the beverage has risen 2.4% per year over the past 10 yrs.

But the increase masks a divergent trend: while consumption in the traditional markets of Western Europe, the USA and Japan grew by just 1.1% per yr, demand in producing countries grew by an impressive 4.3% per yr. Consumption in non-producing emerging countries expanded by 3.8% per yr. Such divergent consumption trends has narrowed the demand gap between different markets.

In Y 2000, the traditional consumers accounted for more than 60% of Global demand, estimated then at 105.5M bags.

But in Y 2010, after a decade of strong demand in emerging and producing countries, the share of the US, Western Europe and Japan fell to less than 53% of the 134M bags consumed Globally.

If the current consumption trends continue as they likely will do, by Y 2015 consumers as the market has know them will represents less than 50% of the market for the 1st time.

Paul A. Ebeling, Jnr.

The rise in demand from emerging countries is affecting not only quantity but also quality.

Consumers in nations such as Brazil and Indonesia have for years consumed coffee made from robusta beans and those arabica beans that are of lower quality.

But Keith Flury, soft commodities analyst at Rabobank, one of the largest lenders to agribusinesses, says demand is starting to move up the quality ladder, with consumption of premium washed arabica beans rising, albeit from a level that is still low.

If trends towards greater consumption and higher quality continue in emerging markets, traders and industry executives say the result will be correspondingly higher prices

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

(Source: http://www.livetradingnews.com/coffee-prices-41037.htm)