Coffee prices reach a 34-year high

Despite recent record high prices filtering through, we should not lose sight of the fact that this is a global market situation affecting everyone – no one can escape the fact that coffee is costing more today than it was before. Below is the latest headline report from the ICO outlining some of the fundamental reasons coffee is experiencing these record highs. The previous four rallies of 1977, 1986, 1994 and 1997 were all easily attributable to frosts in Brazil and the markets stabilised very quickly. This is different – a combination of poor weather across a broad base of countries, speculator interest in soft commodities and increasing demand in emerging markets are all contributing factors. At present stocks of green coffee are at their lowest levels since records began in the 1960's. In the short term the outlook isn't rosy for coffee prices. Undoubtedly there will be yet more increases in 2011, by how much is difficult to say, it depends very much on New York. A Reuter's poll in New York on the 9th March 2011 forecasted raw coffee would hit the psychologically important figure of $3.00 per pound by the end of this month, probably sooner. Martyn Herriott, executive director of the Beverage Standards Association said. "These are difficult times for all of us but the only alternative is to continue to pass these increases along to our customers. Ultimately it is the coffee drinking consumer that will make the final decision to buy or not buy that gourmet coffee. Coffee has always shown itself to be resilient and as long as it is still perceived to be an 'affordable luxury' consumers will continue to buy. "Coffee prices in February recorded further increases in relation to their levels in January 2011, with the monthly average of the ICO composite indicator price up from 197.35 US cents per lb to 216.03 US cents per lb, the highest level recorded since June 1977. The average of the 2nd and 3rd positions on the New York and London futures markets rose by 9.8% and 8.9%, respectively. On the New York futures market, which reflects the situation of Arabicas, the average was 261.41 US cents per lb in February 2011, the highest monthly level recorded since May 1977. "Market fundamentals continue to favour firm prices. Given the limited availability of Arabica coffee on the international market and the strength of domestic consumption in Brazil, high levels of production in Brazil in crop year 2010/11 failed to have a negative impact on prices. Moreover, world stocks need to be replenished since they are at their lowest levels for many years. At the same time, however, current price levels do not encourage producing countries to retain stocks and, notably in Vietnam producers continue to export and take advantage of high price levels. Additionally, adverse weather continues to affect the coffee growing areas in many parts of the world."