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High-End Coffee Beans Are Surging as ‘Serious’ Deficit Looms

Futures for arabica coffee, the type used in lattes and flat whites at cafes like Starbucks Corp., are surging on signs that a global supply deficit is widening.

The world will be short 7.5 million bags for the this season’s crop cycle, following an outlook for reduced output in top grower Brazil, according to Citigroup analysts including Aakash Doshi. Frost is a threat to Brazilian coffee groves between June and August, and coffee traders including Volcafe, a unit of ED&F Man, and Marex Spectron are seeing even bigger world bean shortfalls coming in October.

Luxury coffee beans face a “serious deficit threat in the coming marketing year,” the analysts said.

Amid the supply struggles, demand for coffee is rising as economies reopen following a year of lockdowns due to the Covid-19 pandemic. A 1% change in world economic growth can affect demand by almost 1 million bags, each weighing 60 kilograms, according to industry association estimates. The global economy is on track to expand 6% this year, the most in four decades, the International Monetary Fund said Tuesday.

Arabica coffee for May delivery rose 4.1% to $1.2715 a pound in New York, on pace for the biggest gain since Feb. 22 and among the biggest increases within components of the Bloomberg Commodity Index that also includes rising crude oil, cotton, sugar and cocoa.

The rally is a turnaround for coffee, which slid 10% last month along with broader commodity markets on concerns about the pace of the global recovery. Now, “agriculture commodities appear set to perform well, at least into 2022,” with record-high equity prices and a bullish oil market outlook as tailwinds, Citigroup analysts said.

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