All year long, I’ve reported on the upward price movement of Arabica coffee beans, the high-quality beans used in gourmet coffees, like what you would find at your local Starbucks (SBUX).
A drought in Brazil adversely affected this year’s coffee crop. The current weather may also affect next year’s crop, too, as this is a critical flowering period for coffee trees.
While Arabica prices rose over the past six months, the price for Robusta coffee, lower-quality beans, moved little. These beans are mainly grown in Vietnam, which is the No. 1 exporter of coffee in the world.
In the Westernized world, Robusta beans are used to make instant coffee. But in the developing world, the beans are quite popular and used in all forms of brewing. In fact, developing countries are consuming so much of the cheap coffee that global Robusta consumption is quickly catching up to Arabica consumption.
But Robust may see a dip soon. Unfavorable weather in Vietnam is effecting this year’s crop and may send prices higher.
Not So Robusta
While not as severe as the environmental events in Brazil, Vietnam’s key coffee-growing region, the Central Highlands, is struggling with tree fatigue and poor growing conditions.
Volcafe, a major global coffee trader, said, “Tree fatigue, as well as increased incidence of disease will reduce yields this year. Variable weather during the development of this season’s crop has also led to some quality concerns.”
According to Volcafe, global Robusta production will fall 4.5% from a year earlier to only 66.3 million 60-kilogram bags, mainly thanks to Vietnam’s small crop. Meanwhile, Volcafe reports that worldwide demand will rise by 2.8% to 69.3 million 60-kilogram bags.
The deficit of 3 million bags for the 2014-2015 crop is the largest such deficit the Robusta market has seen in nine years! Last season, there was actually a surplus of 2 million bags.
Adding to that, Robusta coffee growers in Vietnam have the smallest Robusta beans inventory since 2011.
All this spells higher prices for consumers of instant coffee around the world.
Tough Business Brewing
Low inventory may also pressure the profit margins of instant coffee makers, such as Nestle SA ADR (NSRGY), whose Nescafe brand sources Robusta beans from Vietnam.
The bottom line is that no matter what type of coffee drinker you are, you will likely pay more for that cup of joe in 2015.
And “the chase” continues,
P.S. Follow me on twitter @TimMaverickWSD!