Arabica coffee hits record on signs of supply reduction

High-end Arabica coffee traded near two-week highs, while the bulls saw supply reduction.

Stocks monitored by the exchange fell back on Tuesday, and inventories are heading for a seventh consecutive weekly decline. Additionally, Colombia, the second largest producer, cut estimates for this season’s harvest by 7% as excessive La Niña rains affected yields.

December futures rose as much as 1.9% to $ 2.12 a pound on the ICE Futures US exchange in New York, the highest level since mid-October, before cutting gains.

This year, the price has risen 65% after severe blows to crops in Brazil, the main exporter. High transportation costs and shipping delays from South America to Asia have also helped drive earnings.

Rising production costs also point to reduced yields of the high-end beans used by Starbucks Corp. and Nestlé SA’s Nespresso brand.

Increases in fertilizer prices have also affected farmers. Additionally, weak currencies in countries such as Costa Rica, Colombia and Brazil are making it difficult to import nutrients, further exacerbating financial pressure on producers, said Xinia Chaves, executive director of the Costa Rican Coffee Institute.

Costa Rica, which was already expected to experience a 6% drop in production, could see further erosion of yield if it does not apply enough fertilizer to coffee plants in time, he said.

In Colombia, fertilizers represent around 15% of expenses, so price increases are having a big impact on costs, said Roberto Vélez, general director of the National Federation of Coffee Growers. Hopefully, better coffee prices will incentivize growers to fertilize, he said.

In other parts of Brazil, plants are flourishing and abundant rains recently brought relief to crops hardest hit by the drought, particularly in Minas Gerais’ major producers.

Next week, most regions will get plenty of moisture, which is necessary for the flowers to adhere and for the large ones to develop, according to forecasters from Somar Meteorologia.