LONDON – Robusta is beating arabica for the first time in four years as roasters use more of the cheaper grade and farmers reap fewer beans in Vietnam, the top grower.
Robusta, used in espresso and instant coffee, typically costs less than the arabica used to make specialty drinks by retailers such as Starbucks. But its discount has narrowed to 74 cents a pound, from 145 cents at the end of 2011.
The spread will contract to 55 cents by the end of the year, the lowest since July 2009, as demand increased to a record, the average of 10 trader estimates compiled by Bloomberg shows.
Roasters used more robusta in their blends to control prices as arabica surged to a 14-year high in May 2011 after the smallest Colombian crop since 1976 and reduced output from top supplier Brazil.
Even after falling 26 percent this year, arabica is still more expensive than robusta and is the worst performing commodity tracked by Bloomberg. Retailers are reluctant to change the taste of products again so soon in the $75.5 billion global market as consumers choose cheaper options.
We have additional demand the market has to cater for and roasters are unlikely to shift back to arabica, said Kona Haque, an analyst at Macquarie Group in London who has followed agricultural markets for 14 years. A smaller crop in Vietnam is very bullish for robusta prices.
Robusta rose 14 percent to $2,067 a metric ton (94 cents a pound) this year on NYSE Liffe in London as arabica declined to $1.6765 a pound ($3,688 a ton) on ICE Futures U.S. in New York after Brazils government forecast a record crop for this year.
The Standard & Poors GSCI gauge of 24 commodities added 3.7 percent and the MSCI All-Country World Index of equities gained 8.1 percent. Treasuries returned 2.1 percent, a Bank of America Corp. index shows.
The slump in arabica is already spurring some companies to cut retail costs. JMSmucker Co., which owns the Folgers brand, lowered retail prices in May by about 6 percent. Futures have declined another 6.1 percent since then.
Smucker anticipates lower coffee costs for the remainder of the year, President and Chief Operating Officer Vincent C. Byrd said on a conference call with analysts Aug. 17.
As much as 2 million bags, each weighing 132 pounds, of the 5.5 million bags of additional robusta demand this year came from roasters switching varieties, according to Holland Capital, an agricultural investment company in London founded in 2011. Robusta will account for 46 percent of all coffee consumption in 2012-13, up from 44 percent this season and 40 percent in 2010-11, Volcafe Ltd. estimates.
Blend recipes were changed, and consumers were also shifting to the cheaper option in the supermarket, Volcafe, the coffee unit of commodities trader ED&F Man Holdings Ltd., said in a quarterly report last week.
Vietnamese production may drop 10 percent to about 21.7 million bags in the 12 months starting Oct. 1, from a record 24.2 million, according to the median in a survey of as many as 10 traders, growers and shippers this month.
The weight of last years crop on trees weakened older branches, obliging farmers to prune them. That means production will decline this year, said Le Tien Hung, the Dak Lak-based deputy general director of Sept. 2nd Import-Export Co., the countrys fourth-biggest exporter.