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Home » Forecasting & Demand Planning » The Winners and Losers of Coffee's 13-Year Low

The Winners and Losers of Coffee's 13-Year Low

The Winners and Losers of Coffee's 13-Year Low
April 12, 2019
Bloomberg

Coffee has been among the worst-performing commodities in the past few years as the world became awash with beans, and there are few signs of a meaningful rebound any time soon.

With arabica languishing near a 13-year low and robusta futures also performing poorly, there are concerns that the industry’s stability is under threat. Here’s a look at who’s winning and losing from the rout, from speculators to coffee-shop customers.

Roasters

The slump means roasters such as the makers of the Maxwell House and Folgers brands, Kraft Heinz Co. and JM Smucker Co., are paying less for their beans. That could benefit margins at companies like Smucker, whose shares have climbed to a one-year high.

“There will be some good money made by large roasters,” said Jeffrey Young at consultant Allegra Strategies Ltd. Still, the benefit may be limited. For example, roaster Jacobs Douwe Egberts indicated that it’s passing savings onto its customers.

Consumers

Coffee-shop drinkers are actually paying more for a cup now than they were in 2011 — an espresso at Starbucks Corp.’s U.K. stores has risen about 20 percent. But that doesn’t mean they’re necessarily getting a raw deal, Allegra’s Young said.

“Coffee represents a very small cost of all the costs of running a coffee shop,” he said. Rents and equipment have gone up in price, while other ingredients and currency movements also impact the cost of a cup of coffee.

Still, some food outlets are using the rout as an opportunity to lock in purchases at low prices, said Marcus Swift, commercial director at coffee roaster UCC Coffee U.K. Ltd., which supplies McDonald’s Corp. and Greggs Ltd.

Money Managers

Speculators have been betting on declines in arabica since August 2017, and the wager has paid off for those who stuck with it, with prices slumping about 30 percent since then.

Money managers are betting that prices will fall further still. Their net-short position is at a six-month high, the latest U.S. government data show. Arabica futures are down 7.8 percent this year at 93.90 cents a pound in New York.

Farmers

Like every industry, low prices are bad news for producers. In some coffee-growing countries, the market price of arabica is below the cost of production, and it’s hard for farmers to suddenly switch to other crops. That’s because coffee trees last several years once planted.

Growers in Vietnam, a key robusta producer, have been hoarding beans while they wait for prices to improve, according to shipper Intimex Group. In Honduras, low prices are preventing growers from harvesting all their crop because they can’t pay pickers or cover the cost of input such as fertilizers, according to the National Association of Coffee Exporters.

The “real victim” is the coffee farmer, Young said.

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    KEYWORDS consumer packaged goods Food and Beverage Forecasting & Demand Planning Global Supply Chain Management SC Finance & Revenue Management SC Security & Risk Mgmt Sourcing/Procurement/SCM
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