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Arabica coffee futures rise to new highs

Intercontinental Exchange Ice Arabica futures

MILAN – Ice Arabica coffee futures rose to a their highest since the end of July following a report from Reuters according to which coffee growers in Colombia have failed to deliver up to 1 million bags of beans this year or nearly 10% of the country’s crop. The default would prompt exporters of Colombian coffee to scramble to obtain coffee supplies on the cash market.

The main Arabica futures contract for December delivery closed at 204.25 cents, up 290 point from Friday, posting its fourth consecutive gain.

World coffee prices have soared 55% this year, prompting Colombian farmers to default on sales clinched when prices were much lower in order to re-sell the coffee at higher rates, says Reuters.

“Leading global roasters are planning to change the branding on their ‘single origin Colombia’ coffees due to sourcing problems,” says a dealer at a global agricultural commodities trade house quoted by the report.

Delivery defaults in a major producer like Colombia can exacerbate price spikes on world markets, although these would be temporary because the coffee ultimately exists and will weigh on markets once it is re-sold.

Colombian farmers say they will deliver the coffee later this year or next but buyers are unconvinced.

Many are opting to see losses now and write the purchases off as defaults rather than wait and risk even bigger losses if farmers still don’t deliver next year and prices rise further, according to a senior trader at another global trade house.

He said several global trade houses are looking at losses of $8-10 million each on undelivered coffee, while Colombia’s coffee growers federation FNC, which represents farmers but also accounts for 20% of the country’s 12.5 million bags of annual coffee exports, faces higher losses.

It should be noted that coffee production in Colombia rose by 225 in September to reach 1.2 million 60-kg bags of green coffee.

So far this year (January-September), production exceeded 9 million bags, down 5% from the over 9.5 million bags produced in the same previous period.

In other news, Vietnam’s national weather agency says the Central Highlands, the largest growing region of robusta coffee in Vietnam, will receive 10% to 20% more rain than the historical average this month. Also, Vietnam’s national weather agency said the rainy season might extend to the end of November instead of ending in early November.

Robusta futures prices for November delivery closed down $18 at $2,099.