Little relief in sight for soaring coffee prices

Robusta coffee prices have been riding high and lending support to the premium arabica market, but do not expect the widely anticipated bumper crop in Vietnam to bring prices back to earth any time soon.
In a highly caffeinated market, London robusta coffee jumped 6.5 percent to a 7-1/2 year high earlier this week and blasted through the $2,000 a tonne barrier as feverish trading continued in the September contract.
Prices are up more than 30 percent on the year and the market is in steep backwardation because buyers are worried about tight supplies and are willing to pay a premium in the current month compared with more distant delivery dates.
This wasn't always the case. Robusta coffee beans, used heavily for instant coffee products, have long taken a backseat to arabica, whose price has been steady but not spectacular this year.
Arabica prices in New York for the benchmark December contract have been hovering around $1.05 to $1.10 a pound over the past week, but down from $1.34 in January.
The excitement in the robusta market is also spilling over to the arabica market.
"I expect generally firm prices," said Jack Scoville, vice president at the Price Group, a Chicago-based commodity brokerage. "There is no real doubt in my mind that we can't see this market turn back to some highs of around $1.50 a pound."
Demand for robusta beans has risen sharply over the past two years as some coffee producers have begun to use a greater proportion of the beans over arabicas.
But Vietnam, the world's largest producer of robustas, suffered a drought last year and the world started careening to a supply squeeze, a situation also played to full advantage by the big investment funds.
"There is a huge demand for robustas and there are no robustas in the market. As a result of this, the prices are skyrocketing," said Anil Bhandari of India's Coffee Board. According to a Reuters poll in July, world supply for robusta and arabica beans in the coming year should total 122.5 million bags, just above an expected demand of 118.5 million bags, according to median estimates.