Roaster of $803-a-Pound Coffee Sees Supply Risk Amid Rout

(Bloomberg) -- The rout in benchmark coffee prices may threaten supplies of premium beans and the diversity of crop varieties sought by many roasters.

Farmers have been grappling with years of losses. In the long term, output of varieties that fall between commodity and ultra-premium beans, might decline, said Heather Perry, vice president of Klatch Coffee and board president of the Specialty Coffee Association. Increasing output of standard arabica and robusta beans undercut prices, while consumer demand for exclusive brands is increasing in the U.S., European Union and Japan.

“If these coffees cease to exist, how do we differentiate in the market where you are essentially left with two options?” said Perry, whose father founded Rancho Cucamonga, California-based Klatch 25 years ago. “As we look two to five years out, what concerns me about coffee prices is: What does my business model look like?”

Brazil, the world’s largest producer, is growing larger crops on mechanized farms and exporting record amounts as the real weakens against the dollar, boosting the appeal of shipments priced in the greenback. Production from Vietnam, the second-biggest grower, is rising.

Klatch’s Coffee sells a variety of products to customers with discerning tastes. Prices can range from $3 to $20 a cup or higher. The roasting company last year bought the Elida Geisha Natural variety from Panama for $803 a pound.

Most farmers grow a mix of varieties. Some produce beans delivered against arabica contracts traded on ICE Futures U.S. in New York.

Arabica futures for July delivery gained as much as 3.8% to 93.35 cents a pound on Tuesday. The price reached 87.6 cents a pound on May 7, the lowest since 2005. Robusta futures in London are trading near the weakest in nine years.

Recently, specialty coffee growers in Ecuador with a “proven reputation” are getting higher offers than traditional farms, according to a report by the U.S. Department of Agriculture’s Foreign Agricultural Service. An unidentified Korean buyer in 2018 was said to have paid $3,800 for a 60-kilogram bag in one lot of Ecuador’s high-altitude specialty coffee, according to the report.

Klatch offers coffee with different tastes from various countries at a range of prices. The company recently sold out of the $75 Elida Natural Geisha 803 Experience, which included 18 grams of whole beans, a mug and instructions from a champion brewer.

The roaster offers 12-ounce bags for about $15 from Sumatra or $18 from Ethiopia. Shoppers at most U.S. grocery stories can find dozens of varieties from around the world at various prices.

Price Discovery

Amid the slump in futures markets, the Specialty Coffee Association since last year spent more time and resources on studying the impact on producers, exploring alternative price-discovery tools and providing companies with ways to address risks in the supply chain.

Many producers of a large variety known as washed arabica in parts of Mexico, Central America, Africa and Asia are getting prices below the cost of production, said Ric Rhinehart, executive director emeritus of the Specialty Coffee Association.

Many of these farmers “can’t continue,” Rhinehart said. “They have sustained all the losses they can.”

--With assistance from Marvin G. Perez.

To contact the reporter on this story: Shruti Date Singh in New York at ssingh28@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Millie Munshi, Reg Gale

©2019 Bloomberg L.P.