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A 'Cup Of Joe' Is About To Get A Whole Lot More Expensive

Tyler Durden's Photo
by Tyler Durden
Tuesday, Sep 21, 2021 - 02:45 AM

Robusta coffee prices continued to soar to record-highs this week as concerns deepen over the outlook from Brazil, the world's top producer. 

"Cheaper robusta-coffee beans, used widely in instant-coffee beverages such as Nestle SA's Nescafe brands, are sold out in Brazil. After drought and frost ruined crops of the higher-end arabica variety favored by cafes like Starbucks Corp., local roasters are racing for robusta replacements and driving prices to new records each day," Bloomberg wrote.

Spot prices for Brazil robusta Espirito Santo have nearly doubled this year, up 356 reais per 60-kg bag, or about 87% to 769 reais. 

Much of the price appreciation came after a freak cold snap decimated Brazil's coffee-growing regions in July/August. The unexpected weather was compounded by massive droughts, destroyed arabica crops, hence why robusta is being bought up in droves. 

"There seems to be a consensus that 20% of all trees were affected," Sholom Sanik, an analyst at Friedberg Mercantile Group Ltd., said in a note. "Although more than half of the crop was harvested before the first frost hit, much of the fruit that remained unharvested will be lost."

In the past, US importers would quickly source from Vietnam, the second-largest producer, if there were weather-related issues in Brazil. But this time around, COVID restrictions, shortage of shipping containers, exorbitant freight costs, and port congestion have made it difficult and expensive to source from the Southeast Asian country.

According to a recent Barclays note, US importers like Starbucks are hedged out for more than a year to deal with price fluctuations. Though JM. Smucker, which owns the Folgers and Dunkin' coffee brands, recently warned that supply chain disruptions are rising costs that will impact its business. 

"As we came into the fiscal year, we were anticipating mid-single-digit cost inflation as a percent of our total cost of goods sold," J.M. Smucker's Chief Financial Officer Tucker Marshall said. "Now we see high single-digit cost inflation."

Earlier this year, we warned that cheap coffee is no more, and a global deficit is coming. Even cheaper beans are hyperinflating away. 

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