May 7, 2011

Diminishing Demand

I wrote, not too long ago, that coffee had crossed the three dollar threshold for the first time in decades. Subsequently, and not surprisingly, coffee shops began upping their prices. Customers voiced concerns, but it seems now that they may have done more than that.

Arabica coffee retreated for the third straight day on signs of sliding demand. Sugar fell, while cocoa rose.

Coffee inventories in warehouses monitored by ICE Futures U.S. in New York rose 1.2 percent in April, the first monthly gain since October 2008. Mild-bean prices offered by producing countries are the lowest in two or three years, according to Rodrigo Costa, vice-president of institutional sales at Newedge.

“We have witnessed a fall in demand,” Costa said by telephone from New York.

Arabica coffee for July delivery dropped 0.7 cent, or 0.2 percent, to settle at $2.8755 a pound at 2 p.m. on ICE Futures U.S. in New York. The most-active contract slid 4.1 percent this week.
As you can see, that three dollar threshold has been crossed again; this time, it's going in the other direction. This is certainly not a precipitous drop, but it shouldn't be disregarded either. 

Clearly, there is a market for coffee. That includes, we tend to think, a growing market for more expensive, specialty drinks. This trend doesn't prove otherwise, but it does tend to suggest that coffee -- at least the pricier stuff -- is still a luxury item to most people. As such, it can be done without, when the price creeps uncomfortable high.

Whether this trend continues, and whether prices adjust to reflect it, will be worth watching.

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