Coffee Drinkers Loading Up at Home May Revive Robusta’s Fortunes

(Bloomberg) -- Wild price swings have kept Starbucks Corp.’s darling arabica coffee in the spotlight recently. But its bitter-tasting cousin is likely to be a winner as the coronavirus fuels more home drinking.

As coffee shops from London to Seattle shut down, shoppers are rushing to supermarkets to stockpile their favorite java. And that’s where robusta beans come into play. While many coffee shops pride themselves in serving the highest-quality arabica beans, the coffee consumed at home usually has a higher content of the cheaper robusta variety.

There’s also the potential for supply disruptions as the virus spreads to the emerging markets where robusta is produced and favored for local consumption. Take the case of Vietnam. The top robusta grower ordered a 15-day lockdown and traders fearing shipping disturbances helped send futures up more than 3% Thursday. That could be the start of a turnaround for futures that have lagged arabica’s gains.

“Stockpiling has been a feature of daily life in much of western Europe and parts of the U.S. for the last few weeks,” said Carlos Mera, analyst at Rabobank International in London. “As the virus expands on a similar exponential path in developing countries, we would expect to see consumers stockpiling coffees that have a higher proportion of robusta.”

For an idea of the impact lockdowns are having in the coffee market, look no further than grocery stores. Coffee sales volume at American retailers jumped 31% in the four weeks ended March 22 from the same period a year earlier, according to data from Chicago-based market researcher IRI. In U.K., sales in supermarkets surged by 30% in the week ended March 14, the biggest increase in at least three years, data from analytics firm Nielsen showed.

Americans consumed 7.6% more at home in the first quarter, while restaurant demand slumped 14%, said Samuel Nahmias, president of researcher StudyLogic. Consumers are for the first time in years drinking more instant and traditional coffee types, which have a higher robusta content.

A similar move could soon happen in emerging markets of Southeast Asia, Latin America and Africa. Brazil and Indonesia are also key producers and consumers of robusta beans. In countries where tea is the favorite drink at home and coffee is usually consumed mainly at shops, overall demand is likely to suffer.

“Most Africans and Asians do not have fancy espresso machines or even drip coffee makers,” so at home they drink instant, said Judy Ganes, the president of J. Ganes Consulting, who has studied the markets for more than three decades. “When coffee shops close that serve arabica and people must drink coffee at home, it will be mainly robusta beans.”

While arabica futures have gained in recent months as supplies dwindle, robusta lagged behind. That’s widened the price gap between the two grades, boosting the incentive for roasters to increase the share of the bitter beans in their blends.

The rise in robusta demand could push prices up by about 16% to $1,400 a metric ton in the coming four weeks, according to Mera of Rabobank.

©2020 Bloomberg L.P.