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Issue #591

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2014 Media Kit

U.S. coffee traders face delays as suppliers haggle over price

By: | at 09:01 AM | Breakbulk & Projects  

U.S. coffee traders say they face months-long delays in getting shipments as suppliers from Central America to Asia push to revise contracts, the latest sign that the meteoric rally in arabica futures earlier in the year has disrupted trading.

At least one supplier is demanding customers fork out more cash for beans that were contracted before arabica prices nearly doubled in the first few months of the year as a long drought scorched the coffee belt in top grower Brazil.

In March, some local traders in Colombia ripped up contracts as prices took off, but this is the first time since the rally that U.S. traders have said suppliers have ditched efforts to negotiate more flexible terms and are using tougher tactics.

One U.S. importer who spoke on condition of anonymity said a supplier is holding his coffee ransom unless he pays more than what was originally agreed.

“They say, ‘Give me more money and I’ll deliver’,” he said.

He is owed three lots (112,500 lbs) of arabica coffee, which are now worth $183,375 based on futures prices, roughly $50,000 more than before the rally that started in late January.

For now, he said will not bow to the demands.

He added that seven containers (roughly 2,100 60-kg bags) of arabica from Costa Rica, a small high-quality producer, that were due to land in the United States in December 2013, have still not arrived, forcing him to buy elsewhere at higher prices, while still holding the exporter to the contract.

Another importer, who also did not want to be named, said he has encountered similar problems.

“It is hard getting the coffee we are owed,” he said, adding that he has agreed to more flexible delivery times and switched origins when possible.

Such disruptions are limited in scale for now, but highlight the impact of the volatile price moves and of concerns about availability, rekindling memories of rallies in 1997 and 2011, when traders said suppliers also sought prices higher than previously agreed on.

The disputes also come as supplies of high-quality beans from Central America have slowed to a trickle after a leaf disease called “roya” wiped out swathes of crops, and as harvesting gets underway in Brazil.

Large U.S. roasters such as Starbucks Corp, Folgers-maker J.M. Smucker Co and Maxwell House-maker Kraft Foods Group Inc have responded to the price rally by raising retail prices for the first time since 2011.

Some exporters may be waiting for a resurgence in prices even as the worst fears about crop damage in Brazil have subsided, sending the market down 25 percent from the April peak of $2.19 per lb.

“When people sell cheap, they’re always delaying, sending back qualities, buying time,” said Ernesto Alvarez, chief executive of large importer COEX Group in Miami.

Central America’s worst-ever outbreak of roya, an air-borne fungus that damages and sometimes kills coffee trees, has already forced some suppliers to postpone deliveries, in some cases, by as much as a year.

Traders have looked to Peru to replace lost supplies, but shipments from the early harvest there have slowed after roya affected low-altitude plantations more than expected.

COEX has bought more beans from Colombia, the world’s biggest producer of high-quality washed arabica, and drastically less from Central America and Mexico this year.

Even so, shipments from Brazil are late, Alvarez said.