A coffee shortage appears to be brewing as global supplies could shift into a deficit as drought in Brazil slashes output. This has resulted in surging wholesale prices and US supplies slumping to a six-year low. Savor today's cheap cup of joe because retail prices are set to rise.
Besides the creeping deficit set to materialize this year, coffee importers in the US have also dealt with a global shortage of shipping containers. Christian Wolthers, the president of Wolthers Douque, an importer in Fort Lauderdale, Florida, told Bloomberg this has resulted in a logistical nightmare.
He estimates his shipping costs from South America have doubled, adding that "these bottlenecks are turning into a container nightmare."
So maybe a perfect storm of factors from adverse weather conditions in South America to further fallout from a global shortage of shipping containers have pushed up Arabica-coffee futures in New York by nearly a quarter since late October.
Last month, unroasted US bean inventory declined by 8.3% from a year earlier to the smallest inventory levels since 2015.
In conjunction with adverse weather conditions in South America, lower inventories mean the coffee market will tighten and support higher prices.
Commodity experts at Marex Spectron estimate the 2021-22 global coffee deficit at around 10.7 million bags, compared with previous figures of approximately 8 million bags. They cite lower Brazilian arabica output after unfavorable weather destroyed crops.
Goldman Sachs told clients in a recent commodity note that if production in South America doesn't improve in the near term, the market could enter a structural deficit given the quick rebound in demand.
Logistical problems have been a significant issue for coffee exporters in South America. There's a lot of product sitting inside Brazilian warehouses with nowhere to go because of the lack of shipping containers.
Luiz Alberto Azevedo Levy Jr., a director at Dinamo, who operates Brazil's largest coffee warehouse, warned the situation would get much worse in the months ahead as volumes of coffee exported by Brazil may decline.
"Logistics have been a headache, dealing with lack of space and containers," said Marco Figueiredo, trader and partner at the Florida-based Ally Coffee, a coffee merchant that imports beans from Brazil. "We are monitoring the situation and talking to clients, making them aware of the rising costs."
Given adverse weather conditions in South America and supply chain woes still lingering from the pandemic, retail coffee prices are set to rise. So what does this mean? Well, probably now is the time to panic hoard coffee unless you don't mind a little bit of inflation.