Brewing Coffee Shortage
Could Fire Up Prices 800%
Trang Ho, INVESTOR'S BUSINESS
Posted 01/08/2014 08:02 AM ET
After years of overabundance, a brewing global shortfall
in coffee could heat up prices as much as sevenfold
over the next decade.
according to Shawn Hackett, founder of Hackett Financial
Advisors in Boynton Beach, Fla., who says technicals,
fundamentals and money flows suggest coffee prices have
formed a long-term bottom.
believes a shortage of Robusta beans, primarily grown
in Vietnam, is triggering a bull market in coffee just
as Brazil's Arabica shortage in 2010 sparked a yearlong
uptrend. A drought in Vietnam last winter led to smaller-than-normal
sized beans, which reduced the yield per tree.
Some 80% of crops have been harvested since the
season began in late October, while London stockpiles
have nearly evaporated.
"This is a sign of huge Robusta
deficits and that London certified stocks have
been the only means to keep the market from running
out," Hackett wrote in the Dec. 15 issue
of The Hackett Money Flow Report.
As a result, buyers are being forced to switch from
Robusta to Arabica, but Brazil's low-quality Arabica
is also in short supply. Brazilian farmers switched
to growing Robusta over the past few years, while Roya
leaf rust, a deadly fungus, destroyed much of Central
America's output. IntercontinentalExchange Group's
(ICE) stockpile of certified coffee has started falling.
Meanwhile, coffee demand climbs to new records every
I run the numbers, we are looking at a sizable Arabica
deficit between now and the spring of 2014," Hackett
reports show that commercial traders — the so-called
smart-money investors— started buying coffee again in
November near the multiyear low.
coffee exports in October and November, the first two
months of the 2013-14 growing year, fell 11% from the
year-ago period, according to the International Coffee
the stock market, IPath DJ-UBS Coffee ETN
(JO) dripped 33% lower in 2013 as Arabica coffee prices
fell to their lowest level in nearly seven years. They'd
already plunged 55% two years prior. JO has slumped
about 75% from its May 2011 peak to a November 2013
trough amid record production in Vietnam and Brazil
as farmers boosted planting acreage and grew higher-yielding
plants. But the ETN has shot 14% off its all-time low
to a three-month high this week.
down 37%, and coffee, off 31%, plunged the hardest last
year among the 22 commodities tracked in the DJ-UBS
Commodity Index. The index fell 10% in 2013 with only
eight components posting gains.
in general and gold specifically were pressured by a
government shutdown, a strengthening economy, lower-than-expected
inflation and concerns over the growth in the Chinese
economy," S&P Dow Jones Indices said in a commodities
report issued Monday.
prices will likely fall further in the first quarter
owing to slowdown in global industrial production growth,
Credit Suisse wrote in a "Commodities Forecast"
invested in commodity ETFs plunged 25% in 2013, according
to Morningstar. Outflow totaled $29.5 billion in 2013,
a sharp reversal after absorbing $10 billion in new
money in 2012. Precious metals funds accounted for $28
billion of the total outflow.