Suez Canal Blockage and Shipping Container Shortage May Cause Global Arabica Coffee Bean Prices to Soar

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According to Bloomberg, coffee supply in the United States is shrinking while wholesale prices are soaring. The global shipping container shortage has already impacted the food trade, and the heavily affected market is preparing to deal with further impacts. Despite Brazil's record coffee production in 2020, US coffee inventories have dropped to a 6-year low. With demand rebounding and Brazil's coffee production significantly declining due to drought, the global coffee production balance is expected to turn into a deficit.

Central and South America are important coffee supply sources for the United States, especially Brazil. Container shipping capacity has become severely insufficient, forcing importers and roasters to face rising costs and supply constraints. The head of a Florida importer stated: "Shipping costs from Central and South America have more than doubled."

The coffee market indicates that as the economy recovers, food inflation may continue to intensify. Since Brazil encountered drought at the end of October last year, New York Arabica coffee futures prices have risen by approximately 24%. Industry data from Monday (March 22) showed that in February this year, US green bean inventories decreased by 8.3% year-on-year, the smallest decline since 2015.

Analysts indicate that the reduction in inventories means the buffer to mitigate Brazil's coffee production decline in the 2021/22 season is weakened, exacerbating market tension and providing sustained support to prices. This month, Marex Spectron increased its forecast for the global coffee deficit for 2021-2022 to 10.7 million bags, compared to the previous forecast of 8 million bags, citing drought impacts on coffee tree flowering and fruiting, leading to decreased Brazilian Arabica coffee production. Goldman Sachs Group stated in a report that if coffee production in Central America does not improve in the coming years, with demand rebounding, the market will enter a structural deficit.

A director from Dinamo, one of Brazil's large coffee warehouse operation companies, stated: At the company's coffee warehouse located in Machado, Minas Gerais, they are waiting for 18 containers to transport coffee beans for export. However, due to port congestion, these containers may take about 15 more days to arrive, which has also reduced Brazil's coffee exports in March.

The world's largest shipping company stated: Currently, they are temporarily unable to purchase or lease containers and charter ships, exacerbating port congestion and export delays. They are trying to purchase or lease all available containers and use already aging containers to maintain operations. The company originally stated that whether from procurement patterns or vessel supply situations, this is temporary, and they expect the situation to return to normal in the first half of 2021.

However, on March 23, a mega-container ship named EVER GIVEN (400 meters long, nearly 59 meters wide) under Evergreen Marine ran aground shortly after entering the southern section of the Suez Canal, blocking the Suez Canal waterway. This forced 15 following container ships to remain stationary, and the waterway for southbound vessels was also blocked.

Currently, the global container shipping industry is in a severe bottleneck period, and the Suez Canal is one of the world's busiest waterways, connecting the main international shipping routes across Europe, Asia, and Africa. This canal handles approximately 10% of global maritime trade volume, meaning when this major artery is blocked, goods cannot flow. After the grounding incident, the market expected coffee prices to surge significantly that day, with US C-type coffee futures prices (March 22) closing up 3.71%.

Goods cannot be exported smoothly, containers cannot reach ports in the short term, and port congestion and container shortage problems continue to worsen. Brazil's national coffee harvest season is about to begin, and Brazil's coffee export issues will also be severely affected, with global coffee prices expected to rise further.

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