Coffee Stockpiles Turn to Gold After Shock to Global Supplies

(Bloomberg) -- Traders holding coffee beans in exchange warehouses are suddenly sitting on a jackpot.

That’s because frigid temperatures have wiped out a chunk of the harvest for arabica beans in Brazil, the world’s top grower. So much was lost to frost, in fact, that it’s estimated to equal twice the amount of all arabica beans in warehouses monitored by ICE Futures U.S., the main exchange for trading coffee futures. That’s rapidly driving up the value of the beans -- some of which have been sitting in storage for as long as three years. On Friday, their price hit a six-year high, capping a 17% weekly surge.

“The ICE inventory will become in high demand, and whoever owns it is sitting on a gold mine,” said Judy Ganes, the president of J. Ganes Consulting.

Brazil started increasing deliveries to ICE after a record crop last year. There were 2.18 million bags of coffee at the depots as of July 22, with the bulk held at facilities in Antwerp. Crop losses for next year’s harvest in Brazil may range from 4.05 million to 5.2 million bags, according to an Ecom Research report seen by Bloomberg.

While prices eased Friday after updated weather forecasts showed a lower chance of frost next week in Brazil, there’s high risk for more frost through mid-August, and there have been freeze events after that date. Also, the intensity of the chill this week damaged young trees, which is expected to affect crops for years as those younger specimens may die and many will have to be replanted.

It takes about three years for plants to become commercially productive, dimming production prospects for years, according to Rabobank International. Furthermore, Honduras, the top supplier in Central America, is struggling to recover from Covid and hurricane impacts.

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