Arabica coffee prices are the highest in almost a decade

Prices for the high-end beans delivered in March climbed 4.6% to $2.3475 a pound in New York, the highest settlement for a most-active contract since January 2012. That's nearly double from a year ago. The beans that are ubiquitous in cafe chains like Starbucks and Peet's Coffee & Tea are adding to the inflationary pressure across many sectors of the economy.

"The supply-chain stress is at unprecedented levels. We have never faced so many adverse factors at the same time," said Judy Ganes, the president of J. Ganes Consulting. "This is quickly turning into a crisis."

Brazilian areas that saw output plunge this year hurt by drought and frosts are expected to have subpar yields also in 2022, and the country doesn't have enough buffer inventory to make up the difference, Ganes said. Prices could soon reach $2.70 to $2.80 a pound, she said.

Local arabica prices in Brazil and Colombia are at fresh record highs. There are increased concerns of more contract defaults in both countries from farmers that had sold the beans at much lower levels in forward deals.

About 3.5 million bags of coffee - more than 400 million pounds - are sitting in Brazilian warehouses, according to Anike Ejlers Wolthers, founder of Red Container Coffee, a broker based in Santos, the country's main export hub. Shipments are taking as long as 100 days when the normal is 30, she said.

Gains on Wednesday were fueled by short covering tied to the soon-to-expire December contract, traders said.

India is also facing yield erosion from too much rain. Meanwhile, Ethiopia's civil war has spared exports so far, yet any adverse developments for Africa's largest arabica grower could tighten the pipeline further.

Elevated freight and fertilizer costs are compounding the industry's supply head winds, and La Nina weather condition could bring erratic weather to South America in the coming months.

Companies are feeling it.

Israel-based Strauss Group, one of the biggest roasters in Europe, said this week higher raw material materials, notably coffee and milk, are eroding margins. The company has raised prices in Brazil, and also in Ukraine, Romania, Serbia and Poland.

Brazilian exporters have been unable to ship millions of bags of coffee in recent months because of port bottlenecks. Vietnam, the biggest producer of robusta, has had problems with supply chain disruptions and soaring Asian freight routes.

"In Brazil, there's a lot of stress on the trees and input costs for fertilizer are rising, so you're not going to get farmers suddenly turning on the taps and producing much more coffee," Geordie Wilkes, head of research at broker Sucden Financial in London, said by phone. "Even if you get a better arabica crop next year, you're looking at a balanced market at best."

In other soft commodities, cotton for March delivery advanced 1.6% to $1.1692 a pound, the highest close since July 2011, on shrinking supply.

There's speculation that India is considering to restrict cotton exports in a bid to bring high prices down for the fiber and yarn, said Peter Egli at Plexus Cotton. That would prompt buyers to seek supplies in other countries such as the U.S. and Brazil.