The global demand for coffee is being pushed to a record just as supplies are tightening tanks to the millennials’ seemingly unquenchable thirst for the drink.
At a fast enough pace to make up for declines by older folks, young adults are increasing their daily consumption and Americans are becoming java junkies at an earlier age.
The trend among younger drinkers is also playing out in other big consumers including Brazil and even tea-loving China and demand in the U.S., the world’s top user, is set for an all-time high.
As drought crimps supplies from Brazil, the world’s biggest producer and exporter, consumption is climbing. since February 2015 in New York, prices for the arabica variety surged to the highest last week. Increasing their bets on a rally to the highest in eight years, hedge funds are positioning for more gains.
Harish Sundaresh, a portfolio manager and commodities analyst in Boston for the Loomis Sayles Alpha Strategies team, which oversees $5 billion says that demand “has been running well above expectations, thereby tightening coffee markets significantly.”
According to U.S. Commodity Futures Trading Commission data published, the coffee net-long holding jumped by 18 percent to 50,651 futures and options in the week ended Oct. 25. That’s the highest since March 2008.
Noting the biggest gain since July, on ICE Futures U.S. in New York, arabica coffee surged 6 percent to $1.655 a pound last week. Prices have averaged about $1.344 this year.
According to Chicago-based researcher Datassential, about 44 percent of U.S. coffee demand is generated by millennials — a cohort of young people now aged about 19 to 34. According to the National Coffee Association in New York, while daily consumption climbed to 60 percent from 51 percent among those aged 25 to 39, it rose to 48 percent from 34 percent among 18- to 24-years-olds in the eight years through 2016. At the same, there was a decline for the 40-to-59 age group and adults 60 and older also saw a drop to 64 percent from 76 percent.
The coffee craze is also starting earlier in life. Data from the association show that while older millenials, born closer to 1982, began consuming coffee at 17.1 years, younger millennials, born after 1995, started drinking coffee at about 14.7 years old.
According to the London-based International Coffee Organization, world consumption outpaced production for a second straight season in the 12 months ended Sept. 30. Among the 22 raw materials tracked by Bloomberg Commodity Index, coffee has posted the fifth-best return so far this year.
As supplies are getting tighter, consumption is rising. Production of Brazil’s crop of robusta coffee, the bitter-tasting beans used in instant coffee, has been hampered dye to dry weather. Drought already cut output in Asia and the Brazil has added to the woes. More coffee roasters are using arabica beans, the smoother variety favored by Starbucks Corp., which has resulted in rise in the prices for that commodity as supplies of robusta are getting harder to find.
(Adapted from Bloomberg)