Who’s winning, losing from coffee’s drop to a 13-year low | TribLIVE.com
U.S./World

Who’s winning, losing from coffee’s drop to a 13-year low

1011437_web1_coffee-bb8d22a8-5c6d-11e9-842d-7d3ed7eb3957
Tomas Ayuso | Bloomberg News
A worker inspects a handful of coffee beans at the San Vicente processing plant in Pena Blanca, Honduras, on Jan. 11, 2018.

Coffee has been among the worst-performing commodities in the past few years as the world became awash with beans, and there are few signs of a meaningful rebound any time soon.

With arabica languishing near a 13-year low and robusta futures also performing poorly, there are concerns that the industry’s stability is under threat. Here’s a look at who’s winning and losing from the rout, from speculators to coffee-shop customers.

Roasters: The slump means roasters such as the makers of the Maxwell House and Folgers brands, Kraft Heinz Co. and JM Smucker Co., are paying less for their beans. That could benefit margins at companies such as Smucker, whose shares have climbed to an one-year high.

“There will be some good money made by large roasters,” said Jeffrey Young at consultant Allegra Strategies. Still, the benefit may be limited. For example, roaster Jacobs Douwe Egberts indicated that it’s passing savings onto its customers.

Consumers: Coffee-shop drinkers are actually paying more for a cup now than they were in 2011 — an espresso at Starbucks Corp.’s U.K. stores has risen about 20%. But that that doesn’t mean they’re necessarily getting a raw deal, Allegra’s Young said.

“Coffee represents a very small cost of all the costs of running a coffee shop,” he said. Rents and equipment have gone up in price, while other ingredients and currency movements also impact the cost of a cup of coffee.

Still, some food outlets are using the rout as an opportunity to lock in purchases at low prices, said Marcus Swift, commercial director at coffee roaster UCC Coffee U.K. Ltd., which supplies McDonald’s and Greggs.

Money managers: Speculators have been betting on declines in arabica since August 2017, and the wager has paid off for those who stuck with it, with prices slumping about 30 percent since then.

Money managers are betting that prices will fall further. Their net-short position is at a six-month high, the latest U.S. government data show. Arabica futures are down 7.8 percent this year at 93.90 cents a pound in New York.

Farmers: Like every industry, low prices are bad news for producers. In some coffee-growing countries, the market price of arabica is below the cost of production, and it’s hard for farmers to suddenly switch to other crops. That’s because coffee trees last several years once planted.

Growers in Vietnam, a key robusta producer, have been hoarding beans while they wait for prices to improve, according to shipper Intimex Group. In Honduras, low prices are preventing growers from harvesting all their crop because they can’t pay pickers or cover the cost of input such as fertilizers, according to the National Association of Coffee Exporters.

The “real victim” is the coffee farmer, Young said.

TribLIVE commenting policy

You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.