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Trouble brewing: Economists say coffee prices to double in 2022

Coffee is as much a part of many church services as preaching and singing, not to mentions business meetings and your home morning ritual. However, prices are expected to continue to climb this year.

Coffee prices had their best year in a decade, climbing more than 76 percent and making the bean the top-performing commodity of 2021. In July, Arabica coffee prices surged roughly 30 percent over transportation issues and unusually cold weather affected coffee crops in Brazil, the world’s largest producer. Last month, the weather changed as drought conditions significantly affected many of the nation’s crops.

Contracts for beans in December averaged $2.34 per pound. On Thursday, coffee futures on New York’s Intercontinental Exchange reached $2.46, marking the highest price since 2011, when the commodity broke above $3 per pound.

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Meanwhile, the International Coffee Association’s benchmark price is now up 100% from a year earlier and could double again.

Rabobank, a Dutch multinational banking and financial services firm, predicts the buying frenzy from late last year will dissipate. Industry observers noted that businesses, trader, and consumers overbought amid uncertainty surrounding shipping disruptions, high freight rates and container shortages.

“While production was relatively unaffected by COVID and there is still uncertainty about any potential demand growth in 2021, we believe sales of green coffee have been faring better than expected because coffee was directly impacted by the scarcity of container availability in 2021, leading companies to over-purchase in order to guarantee production and sales,” Rabobank analysts wrote.

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But there could be a couple of wild cards in the tight global coffee market. Ethiopia is on the brink of a civil war, with government forces fighting with Tigray rebels on the streets. This could hurt production efforts in the world’s fifth-largest exporter of Arabica coffee. Vietnam, the second-largest producer of Robusta coffee, has witnessed a notable increase in COVID-19 infections. This has resulted in reports that officials are considering heightened public health restrictions, something that could affect output for a broad array of commodities.

What does all this mean for consumers who need their morning cup of java? Several U.S. importers, such as Starbucks, are hedged for the rest of the year to handle wider price fluctuations. However, JM Smucker, which controls the Dunkin’ and Folgers coffee brands, says rising costs caused by supply chain interruptions could impact the company’s operations.

In November, overall consumer coffee prices surged at an annualized rate of 7.5 percent, the Bureau of Labor Statistics reported. Roasted coffee climbed 7.6 percent year-over-year, and instant coffee soared 6.8 percent.

Ole Hansen, head of commodity strategy at Saxo Bank, told CNBC that consumers should get ready for a jolt again.

“The question for future price action is how much of these developments are potentially longer-lasting,” he said in a phone call. “I think we need to focus on what’s been unfolding in Brazil this year, where we’ve had a generational low in temperatures, a very quick spell of frost which hit some of the growing areas, and we’ve had a period of drought – this has left the 2022 crop in a bit of a precarious state.”

–Alan Goforth | Metro Voice

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