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Coffee Prices Continue Decline

By  +Follow September 17, 2013 10:04AM
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The price of coffee continued its two-year slump today, with iPath Pure Beta Coffee ETN (CAFE) off almost 4 percent and iPath DJ-UBS Coffee Subindex Total Return SM Index ETN ($JO) down over 3.5 percent. The down day for coffee is part of a clear trend, with both ETFs having lost about 40 percent of their value over the last 12 months and about 70 percent from since April of 2011 when coffee prices peaked at $3 a pound, a 34-year high.

Some of this decline may be due to the continued rise in the use of the cheaper, easier-to-produce Robusta beans instead of the pricier, higher-quality Arabica beans across global markets. This year also saw large yields from Brazil, the world’s leading Arabica producer, who had a record year that helped to push prices to record lows. 

"[There] is a lot of supply out there," said Mark Smucker, president of US retail coffee operations for The J.M. Smucker Company (SJM) , the company behind Folgers Coffee, in August. "And the forecast for the next crop is also large. So that is what I think is driving the arabica market from a fundamentals perspective."

Further decline in production in Vietnam

While Vietnam’s emergence as a major coffee producer has been a major driver of falling prices, recent news would indicate that this year’s crop has declined off of last year’s levels according to the country’s customs department. Vietnam, the world’s top producer of Robusta beans, reported that production in August was 83,700 tonnes (1.39 million), down 18.5 percent year over year. It also puts the country’s January-August production at 968,400 tonnes, a 23.7 percent decline.

Kenya bucks the trend

While global prices continue to fall, news out of Kenya today showed the price of their coffee is on the rise. Kenya remains a small grower, but their high-quality beans are highly prized for their quality and often blended with beans from other countries by roasters. Reports from the Nairobi Coffee Exchange (NCE) on Tuesday had the top price for benchmark AA coffee grade up to $372 for a 50-kg bag, up from $324 just last week.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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