Sarah Butler 

Rude awakening as price of coffee and orange juice shoots up 20%

Drought in main growing areas in Brazil and a tree-killing bug have caused a spike in the price of breakfast favourites
  
  

Coffee
The London traded November futures contract on robusta beans, the type mostly used to make instant coffee, has risen by a third since June. Photograph: Ann Cutting / Alamy/Alamy

Savour your morning juice and coffee this weekend, because the price of your favourite breakfast drinks may be on the way up.

Unfavourable weather in Brazil – varying from droughts to heavy rainfall and frosts – has driven up the price of coffee, sugar and orange juice around the world by more than 20% in the past few months.

The London traded November futures contract on robusta beans, the type mostly used to make instant coffee, has risen by a third since June to $2,027 (£1,561) a tonne on the ICE exchange after the main growing areas of Espirito Santo and Bahia were hit by drought, leaving farmers with only half their potential crop.

The recent rise in price was also driven by concerns about next year’s crop. With reservoirs dry or nearly empty in the regions, farmers have been reliant on annual rains to provide the moisture needed to kickstart coffee plants’ flowering season, and there has been precious little precipitation.

“There has been rain but it’s not enough to repair the damage,” said Carlos Mera, a commodities analyst at Rabobank.

Brazil is the world’s biggest producer of high quality arabica coffee and the second largest grower of robusta beans. More than a quarter of coffee imported to the UK comes from Brazil.

The country also produces 80% of the oranges traded on worldwide markets, more than half of which head to Europe, and exports nearly three times more sugar than any other country.

The price of orange juice concentrate has risen 21% since June to more than $2 a lb on the New York futures market, a level described as “astronomically high” by Andres Padilla, a senior commodities analyst at Rabobank based in Brazil. Padilla says prices have not been close to this level since 2006.

Although globally we are drinking 4% to 5% less orange juice every year, production fell by a fifth in Brazil in the latest harvest year which finished in June, and by nearly a quarter in the world’s second biggest producing region – Florida.

Both areas were affected by the tree-killing Huanglongbing bug, better known as citrus greening. Brazil’s harvest was already expected to be down year-on-year because of the bug, but as the crop was processed it emerged that heavy rains had left oranges with lower sugar content so that it takes more fruit to make each tonne of concentrate, the commodity exported around the world.

“Although demand is shrinking as the consumer is shifting to other products, there is more competition for orange juice as supply is shrinking faster than demand,” said Padilla.

Padilla added that prices were likely to stay high as several years of poor harvests meant that stocks of frozen juice built up in better years, before 2012, were now dwindling. Farmers in Brazil have also been tearing up trees and replacing them with more profitable crops such as sugar cane.

Meanwhile, sugar is up 22% since June to about 23.5c per lb as weather problems in Brazil have combined with concerns about production in India to push up prices.

Some sugar cane was harvested prematurely in early September after frosts in Brazil, and the harvest was also affected by extreme heat and dry weather earlier in the year. In some regions, yields were as much as 12% below expectations, according to Rabobank.

Jara Zicha, a commodities analyst at Mintec, said sugar prices had risen amid “expectations that the global market will be in a supply deficit for the second consecutive year in 2016-17 and stocks will fall to six-year lows.”

As he reported Sainsbury’s quarterly sales figures this week, the supermarket’s chief executive Mike Coupe reflected industry fears about price rises, pointing to a potential rise in coffee prices while other foodstuffs may fall.

One supermarket source said it was not clear that commodity prices would feed through directly to supermarket shelves as retailers were facing tough pricing pressures from rival chains. All the major supermarkets are trying to fight back against the rise of discounters Aldi and Lidl by reducing prices on basics such as fruit, veg, tea and coffee, and so may be forced to absorb higher commodity costs.

 

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