Coffee: more storms may be brewing

published 17 October 2006

The soaring cost of raw coffee beans is now percolating through to US consumers. Procter & Gamble and Kraft Foods have raised the price of their instant brands, while Starbucks customers are having to fork out an extra five cents for their caffeine hit the chain's first hike in two years.

These retail rises aren't surprising: Robusta coffee bean futures have rocketed 70% this year on the back of two poor harvests in Vietnam and damage to warehouse stocks in Italy although some buyers also blame speculative interest from hedge funds, says Chris Flood in the FT. Robusta for September delivery hit a seven-year high of more than $2,000/tonne on the LIFFE Exchange last month, while November reached $1,600/tonne.

Prices have since eased back to around $1,400/tonne for November and the short-term direction will depend on the next harvest in Vietnam, due this month. Further ahead, there are fears that dry weather followed by frosts could severely cut exports from Brazil next year. For investors who fancy a punt on this, life just got easier a coffee tracker (COFF, $2.9) is one of the new Exchange Traded Commodities just launched by ETF Securities.