Home News Bitter Brew for Coffee Roasters as Vietnam Adds to Brazil Woes

Bitter Brew for Coffee Roasters as Vietnam Adds to Brazil Woes

Bitter Brew for Coffee Roasters as Vietnam Adds to Brazil Woes

Leading coffee roasters have been dealt a blow as a strict lockdown in Vietnam, the world’s second-biggest grower has led to higher bean prices on the back of worries about export supplies. Vietnam is the leading exporter of robusta coffee, the bitter-tasting bean used for instant coffee as well as for some espresso blends. The sharp rise in Covid-19 infections and a shortage of vaccines have caused the government to impose travel curbs in producing areas. “There are big worries that you may not be able to transport your coffee out of the country,” said Carlos Mera, an analyst at Rabobank.

The robusta futures benchmark hit a four-year high of $2,043 a tonne on Friday, up by almost 50 percent since the start of the year. The rise follows arabica’s jump to seven-year highs in July after unseasonal frosts in Brazil hit trees already weakened by drought. While many roasters have hedging agreements in place insulating them from coffee price fluctuations, analysts have started downgrading profit forecasts for some companies. JM Smucker, the US food company behind Folgers and Dunkin’ coffee, last week reported a 17 percent fall in quarterly profits for its coffee business from a year before. It also cut its full-year earnings guidance by 5 percent, to $8.25-$8.65 per share, partly on the back of “multiple extreme weather events” which “have impacted key commodities important to our business”.

Some companies, such as Starbucks, have long-term hedging contracts and will not feel the effects of the higher prices in the international commodity markets. At the end of July, Starbucks said it had locked in its coffee price for its business year to September 2021 as well as the following financial year. However, other companies, including JM Smucker, have raised their retail prices in order to shore up margins squeezed by higher coffee costs. Germany’s Tchibo, a leading roaster and retailer, and Japan’s UCC Coffee have been forced to announce retail price increases. JDE Peet’s, the number two roaster after Nestlé and owner of coffee brands including Douwe Egberts and Stumptown, said earlier this month it had “pretty good hedging in place” and was negotiating with retailers on prices.

Nevertheless, some analysts expect the steep rise in bean prices to eat into the Amsterdam-listed group’s margins. “Given the rate of coffee inflation year-to-date, we think it’s unlikely JDE Peet’s will be able to recover the full effect of coffee price inflation in FY2022,” said analysts at Berenberg, who cut their earnings outlook. Coffee experts are now focused on Brazil. The rainy season is expected to start in early September, which will be crucial for the coffee trees that survived the drought and the frosts of the past year. “Rains will be incredibly important in order to wake up dormant trees and stimulate flowerings, replenish soil moisture, and reinitiate growth of foliage for trees that lost leaves due to the frost,” said Ilya Byzov at coffee trader Sucafina.

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