Futures & Commodities

That's a lot for your latte: Coffee price set to soar

Coffee-lovers may soon have to fork out a lot more for their morning latte. Severe weather conditions have hit coffee crops in central and southern America, meaning global supply for 2015 is at risk.

Arabica coffee beans, the base for most coffee drinks, have faced two major supply shocks: "coffee rust", a disease which weakens coffee trees and inclement weather. Both are set to leave global production 7.1 million bags below demand according to coffee analysts.

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A coffee-bean picker at a plantation in Colombia.
Luis Acosta | AFP | Getty Images

This shortfall will be met by carry over stock that was held by farmers at the beginning of January, analysts have said, but there are now insufficient supplies to deal with a deficit next year, should one occur – which is a threat due to El Nino weather patterns.

Prices for coffee beans have doubled since December following patchy weather conditions but "the threat is for 2015," coffee analyst at Marex Spectron, Steve Pollard told CNBC.

"If the trees were producing normally, we would be in a surplus situation. What we do not know is if trees in Brazil will produce normally in 2015. What we cannot do is quantify the loss at this stage, because it is an unprecedented event," said Pollard.

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Coffee buyers, traders and agricultural experts will be visiting plantations in Brazil later this year to assess the situation. If reports suggest that weather damage has been severe, 2015 prices will rise considerably, he said.

On the ICE, one of the main commodity exchanges, prices are currently trading at around $2.05 per pound, falling from the 26 month high of around $2.20 seen last week, which remained below the recent record high of $3.00 per pound seen in 2011.

'Threat' of global coffee supply shortage in 2015: Pro

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Commodities were the best performing asset class in the first quarter of this year with gains of 3.1 perent, beating bonds and stocks with coffee named the "king of commodities" according to the Bank of America Merrill Lynch.

Commodity prices as measured by the DJ-UBS Commodity Index rose 7 percent over the period and commodity ETPs saw their first quarterly inflows after four consecutive quarters of outflows, ETF Securities data shows.

However Coffee Exchange Traded Products (ETPs) saw outflows as investors took profits from the Arabica price surges.

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"Following record inflows into coffee ETPs in 2013 as the Arabica coffee price fell close to a seven-year low, investors sold $264 million of their long coffee ETP holdings in February and March as the Arabica price surged 70 percent. Short coffee ETPs have recently started to see increased investor interest," said Nicholas Brooks head of research and investment strategy at ETF Securities.

"We think prices will remain very volatile this year, making an outright long or an outright short position very risky," Pollard told CNBC.

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'Threat' of global coffee supply shortage in 2015: Pro