Reported by Star-Bulletin staff & wire
Thursday, May 29, 1997
LONDON -- A sizzling rally in coffee prices that today took U.S. futures to $3 per pound, not seen for 20 years, may be a prelude to yet wilder gyrations. Coffee prices may get wilder
The rally is unprecedented in that there hasn't - yet - been a winter frost in Brazil this year. If there is one, some analysts see New York futures for quality arabica beans going to an historic $5 or even $7.
If there isn't, they add, watch for the speculative bubble to burst, with a downside of $1.50.
Coffee is up since January by 120 to 150 percent, depending on quality.
Following another round of hikes by coffee makers, Starbucks Corp. -- the leading retailer and roaster of specialty coffees in North America -- said yesterday it will raise prices for the second time in three months.
It blamed the increase on the soaring cost of high-quality beans amid scarce supply. Starting tomorrow, a cup of regular Starbucks coffee will cost a nickel more. For espresso drinks, the price is going up 10 cents a cup, while whole bean coffee prices will increase 40 cents a pound.
Starbucks hopes the price hike won't make too much difference to customers already used to its pricey gourmet blends.
"We did not see any measurable attrition with the last price increase," spokesman Alan Gulick said.
In March, Starbucks bumped its drink prices by about 5 cents and its retail bean prices by 30 cents a pound.
The coffee price rally began because of a shortfall from Colombia, the second biggest exporter after Brazil, and on forecasts of lower Brazilian crop. Stocks are at 20-year lows and supplies from South and Central America will remain tight at least until the October harvest.
Against that backdrop, the onset about now of the season of the year when Brazil may get a damaging frost, has been enough to trigger a frenzy of futures buying.
New York futures for the better quality arabicas, mostly from the Americas, hit the new 20-year peak of $3.15 per pound soon after the opening bell.
They had topped $2 on March 4, the highest since a frost actually did hit Brazil in 1994. With $3.00 out of the way, traders said New York could challenge the all-time high of 340.70 cents, set on April 14, 1977.
In London, the July contract for the robusta type of beans, the less classy coffee which is in more generous supply from Asia and Africa, jumped almost 20 percent on Thursday alone.
It hit $2,670 per tonne, up $412 on the day and 120 percent this year.
"Speculators have been piling into coffee ahead of the frost season in Brazil," brokerage GNI Ltd said in a monthly report.
"Should a frost of 1994's magnitude hit Brazilian coffee over the next few months, then coffee prices could soar to $5, perhaps $7 per pound," it said.
"But if a frost is not seen, the downside for prices could perhaps be $1.50 or so. It seems like a fair bet."
Two severe frosts in 1994, one in June and another in July, damaged more than half of Brazil's trees. Drought followed, and some prices quadrupled.
Since the new rally began in January, Colombia has been selling heavily from its stocks while Brazil could be exporting some 1.5 million bags over a quota it has agreed with other sellers.
But the market went on up.
Besides low stocks and tight supply, "a better explanation may be that consumption is much higher than anticipated," GNI said.
"Recent anecdotal comments from roasters indicate that they have not noticed a significant fall in offtake at the retail level, despite a series of price hikes," it added.
Roasters in the United States and Europe have been passing on some of the soaring cost of beans to the shops, despite fears that this could hurt demand for coffee.
Overall, there could be a fall of just around one percent in consumption in major importing nations based on prices at below $3, a major UK commodity research firm said in a study.
Some coffee drinkers could switch to tea or other beverages, but roasters doubt if there will be a big shift.
Earle M. Jorgensen Co., which has had a metals distribution business in Hawaii since 1960, has sold the Hawaii operation to Ferro Union Inc. of Torrance, Calif., for an undisclosed price. Earle M. Jorgensen sells Hawaii offices
Irving Hirata, general manager of the Hawaii operation, said the company expects no changes locally.
Jorgensen, which used to be near Honolulu Airport, moved to its current location in Kapolei in the late 1980s.
It distributes a wide variety of metal products, makes metal roofing and runs a galvanizing plant.
Hirata said there are 32 employees at the seven-acre facility.
Ferro Union is a subsidiary of Macsteel Service Centers USA.
WASHINGTON -- Average interest rates on 30-year, fixed-rate mortgages hovered just under 8 percent for the fourth consecutive week, the Federal Home Loan Mortgage Corp. said today. Fixed-rate mortgages
remain under 8%The average edged up to 7.94 percent this week from 7.92 percent, leaving it about a quarter percentage point below a seven-month high of 8.18 percent the week ended April 3.
That was the week after the Federal Reserve tightened monetary policy for the first time in two years.
On one-year adjustable rate mortgages, lenders were asking an average initial rate of 5.83 percent this week, up from 5.80 percent.
The rates do not include add-on fees known as points.