Lydon cites Bloomberg’s Claire Leow, who reported on Tuesday that world coffee consumption may outstrip production by as much as 8 million bags in 2009-10 because of the smaller crop in Brazil, the world’s top grower:
Prices of the mild-tasting arabica coffee used by Starbucks Corp. jumped 6.1 percent yesterday, the biggest gain in almost three years as Brazil’s Agriculture Minister Reinhold Stephanes said output may drop as much as 22 percent next year to as low as 36 million bags. Prices of the bitter-tasting robusta used in espresso and instant coffee by Nestle SA climbed 4.3 percent.
Interestingly, coffee has outperformed commodity indexes since prices plunged at the end of June. Arabica has dropped 29 percent in New York, for example, compared with a 61 percent slump in the S&P’s GSCI index of 24 raw materials. Leow’s report mentions, by the way, the other two coffee exporters of note–Colombia and Vietnam:
Colombia was expected to produce 12.5 million bags, “but rains may have reduced that by 200,000 to 500,000 bags. Good management practices will keep the crop at between 12 million and 16 million bags in coming years, said [Nestor Osorio, International Coffee Organization Executive Director].
“Vietnam isn’t losing very much because the industry is still young and the trees have strong yields,” he said, estimating the current crop at 21 million bags. Output in the next three years may stabilize at 18-20 million bags, he said.
Finally, the iPath Dow Jones AIG Coffee TR Sub-Index ETN (NYSEArca: JO) is down 24.8% since inception. It, along with the other soft commodity funds from the iPath family, is arguably a prudent play, especially if you buy into the Jim Rogers’ secular commodity hype that reasons that the world is only getting bigger, and demand can only outpace supply in the long run.