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Risk to coffee stocks after hurricane supports price rises

By staff reporter , 02-Sep-2005

Prices for the omnipresent beverage and confectionery ingredient coffee leapt this week after flooding caused by Hurricane Katrina put inventories of beans in New Orleans at risk.

New Orleans, the second-largest coffee port in the US, was struck on Monday by a severe hurricane that has left the city in an apocalyptic state.

 

Reports estimate that New Orleans is currently storing some 1.6 million 60 kilogram bags of green coffee, representing over a quarter of all US green coffee stocks.

 

The uncertainty as to the fate of these beans has created bullish prices, with New York commodity markets seeing coffee prices rise the most in six months, a picture reflected on the London-based futures market Liffe.

 

At Liffe yesterday Robusta coffee for November delivery rose $23, or 2.4 per cent, to $975 a metric ton, after earlier rising as much as 5.6 per cent to $1,005.

 

The price increases will inevitably filter down to the food and beverage industry, with all participants in the chain likely to pass on the price rises.

 

The coffee market has already witnessed a strengthening in prices over the past few months.

 

After a sharp decline in the past five years, that saw the prices plunging on oversupplies, lower production figures for 2005/06 have created a bullish climate.

 

Forecasts from the US department of agriculture pitch production for the period at 113.1 million bags (60 kilograms), down about 6 per cent, or 6.7 million bags on the previous year.

 

Most of the decrease is attributed to the drop in Brazil's 2005/06 coffee production level to 36.5 million bags, a 14 per cent fall on 2004/05.

 

Indeed, in recent months beverage makers have hiked up their prices. At the end of last year Kraft Foods said it would raise the price of a 13-ounce jar of Maxwell House instant coffee by 14 per cent to $2.29, in response to a surge in the price of coffee beans.

 

The firm's announcement came on the heels of a 14 per cent increase in ground coffee prices in early December by Folgers, a division of Proctor & Gamble.

 

A harbinger of further price rises, according to US reports this week, P&G has more than 50 per cent of its coffee production in New Orleans.