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Arabica coffee futures surge to almost 10-year highs on tight supply and logistics hiccups

Intercontinental Exchange coffee futures prices

MILAN – Arabica coffee futures in New York rose Wednesday to an almost 10-year high on tight supply and logistics hiccups. The Ice Arabica contract for December delivery surged by almost 5% to close at 232.60 cents per lb, the highest level on record for the front month since January 2012.

The most active contract for March delivery climbed 1,025 points to 234.75 cents per lb. Ice Robusta coffee futures inched $19 up to $2,256, well below last week’s highs.

“Following an annus horribilis in Brazil where frost and drought dealt a blow, not only to the latest crop but also potentially the 2022 the on-season, and normally larger crop, the market in addition must deal with lack of shipments, surging fertilizer prices, too much rain in Columbia and recently also the threat of civil war in Ethiopia,” said Ole Hansen, Saxo Bank’s Head of Commodity Strategy in a note

Hansen said the Arabica’s break above $2.25 which is the 2014 high, may signal a market running towards $3, a record level that was last seen in 2011.

High freight costs and shipping delays from South America to Asia are lending a tailwind to coffee prices,” asset manager WisdomTree said in a report on Wednesday

“For the 2022/23 season, while it will be the higher yielding season, there is plenty of uncertainty over the impact of both drought and frost in Brazil” ” ING Group said in a note on 11 November. Estimates suggest that as many as 12 million bags could be lost in Brazil next season.

Coffee prices also have support after the U.S. Climate Prediction Center last Thursday said that the La Nina weather pattern across the equatorial Pacific would likely increase in strength over the next three months.

A stronger La Nina might lead to extended droughts in South America that reduce coffee production.

On the other hand, demand is beginning to pick-up as COVID-19-related movement restrictions are gradually eased in several major consuming countries including the United States.