Coffee prices poised to climb with bean shortfall nearing third year

The world will face coffee shortages for an “unprecedented” third year in a row due to lower-than-expected harvest from top grower Brazil, according to coffee trader Volcafe.Global supply will trail demand by 3.8 million bags in the next season, with robusta beans hitting a record shortfall amid surging demand for the variety used in instant coffee and as a blend in espressos, the ED&F Man division said in a January report. The shortfall comes after demand in the current season is seen as outstripping supply by 4.5 million bags, according to the firm.“This would imply an unprecedented, third consecutive deficit,” Volcafe said in the report. “We expect the tightest period to begin from August 2023 and continue into 2024, with global stocks, especially robusta, falling to record lows.”Volcafe’s bullish projection could drive up prices for coffee lovers. A robusta deficit of such magnitude could make even traditional brands at the supermarket more costly for consumers trying to cut expenses while dealing with stubbornly high food prices. Brazil is also expected to harvest less arabica, the bean favoured by Starbucks Corp., which could translate into higher prices at coffee chains and cafes. BloombergArabica futures reached a decade high last February following two sub-par crops in Brazil and Colombia and global shipping disruptions. Prices have fallen almost 40% since then, brought down in part by market speculation that Brazilian growers will be gathering a record arabica crop this year.Brazil now has the potential to only produce 40.5 million bags of arabica for the harvest starting in May, down from a July forecast of 49.8 million bags, Volcafe said, citing blossom issues in key areas of Brazil’s Minas Gerais state, the world’s biggest arabica producing region. The firm also trimmed estimates for the 2022-23 season by 1.1% due in part to frost damage.Arabica has traditionally been the most popular variety of coffee, but Volcafe said that robusta accounted for 48% of global demand last year, which is reflected in the tightening supply of the less costly bean type. Arabicas usually command a premium over robustas, but in the past year, that spread has been cut in half amid a shift in blends toward cheaper grades. The trend of using more robusta is expected to continue as inflation and slowing economic growth spurs cost-conscious consumers to less expensive options.Indonesia, the third-ranked robusta producer, is also expected to see its smallest robusta crop in 10 years next season due to damage from excessive rainfall across its major growing regions. That’ll weigh on the variety’s global deficit, which is forecast to double to 5.6 million bags next season. A bag weighs 60 kilograms.“We predict strong global robusta usage to continue until a sizeable shift back to arabica is incentivised either by consumer demand or relative price,” the report said.ETRise MSME Day 2022 Mega Conclave with Industry Leaders. Watch Now.