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Commodities

Coffee bean prices hit 2-year high as Asians drink more

Future prices up 30% from November but weak real puts lid on rises

Coffee bean prices hit two-year high on supply concerns. (Photo by Ken Kobayashi)

TOKYO -- The international price of coffee beans has risen sharply as the world's biggest suppliers Brazil and Vietnam are expected to cut production in the year to the end of September 2020.

Asian demand for coffee is surging. According to the U.S. Department of Agriculture, Indonesia's domestic consumption will rise 54%, Vietnam's will go up 14% and China's will increase 16% in the five-year period to the end of September 2020. Meanwhile, popular Chinese coffee chain Luckin Coffee increased its total number of stores at the end of the third quarter ended Sept. 2019 to 3,680, representing an increase of 209.5% compared to a year earlier.

Benchmark near-term arabica coffee futures jumped nearly 30% from a recent low in mid-November to around 132 cents per pound, the highest since late September 2017.

According to a report by the U.S. Department of Agriculture, Brazil is expected to produce 58 million 60 kg bags of coffee in the year to September 2020, down 2% from June and 10% from the year-ago period.

Brazil cut its production forecast due to drought in the state of Minas Gerais, Brazil's biggest coffee-producing region. "There had been only around 60% of rainfall compared with previous years," said a spokesperson at Japanese coffee dealer Ajinomoto AGF.

The inventory forecast was also lowered to 1.38 million bags of coffee, less than half of the June forecast of 2.87 million bags of beans and down nearly 40% from the previous year.

Coffee production is also likely to decline in other producing countries. "Vietnam's coffee exports dropped 15% from a year ago in the first eleven months of 2019," said Shiro Ozawa, an adviser for Tokyo-based specialty coffee trader Wataru and Co. Some in the market said that Vietnam has also imported beans from Brazil.

In Honduras, the world's sixth-largest coffee producer, output is expected to fall 7% in the year to end-September 2020, also due to drought.

Coffee consumption has remained solid in Asia. The U.S. Department of Agriculture forecasts that global coffee consumption will jump 14% in the year to end-September 2020 from five years ago.

Given income growth and the westernization of dietary habits in emerging economies, coffee consumption is unlikely to slow, fueling concerns over the global supply of coffee beans.

The international price of coffee beans has mostly remained below 100 cents per pound over the past year, sliding to the 80-cent level per pound in early spring. Falling coffee prices had prompted many producers in Latin America to give up production and shift to other crops.

But the spike in coffee bean prices is unlikely to hit consumers' pockets for now, with dealers saying that their prices were hedged some time ago. "The prices of coffee beans at shops are unlikely to increase because we decided to buy the beans a few years ago," said a spokesperson of Tully's Coffee Japan.

A representative at a leading Japanese coffee dealer also said that higher futures prices will not affect coffee bean prices for the time being. "But if futures prices continue to rise, we might have to hike prices going forward," he added.

But whether this trend will continue remains to be seen given as the real, the Brazilian currency, is moving in the opposite direction. A dollar can now buy around 4 reals, after the Brazilian currency hit a record low of 4.26 reals against the dollar in late November. As coffee beans are traded in dollars, the weak real is expected to boost exports and producers' income.

"The weak real will curb the upside of coffee prices," said Ozawa of Wataru and Co.

The year beginning in October is expected to be a better crop year for Brazil. Some research companies predict the country's production will hit record production at 66 million 60 kg bags, reining in prices.

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