Water damage drives coffee price to seven-year high

The world price of robusta coffee leapt to a seven-year high yesterday after it emerged stockpiles kept in Italy had been damaged.

The coffee price had already been sent soaring in recent weeks by fears of a shortage of supply from Vietnam, a major producer of the robusta beans that are traded in London.

An announcement by the Euronext.liffe futures market yesterday told stunned traders that 3,098 certified "lots" of coffee stored in a warehouse in Trieste had been withdrawn from the official inventory of coffee available for delivery against futures contracts. Each lot is worth 5 tonnes and the Italian warehouse contained a large proportion of the 19,428 lots that are Liffe-certified.

Jonathan Parkman, a commodities analyst at Fortis Bank in London, said: "It was quite a shock that such a large quantity had been affected."

Coffee for November delivery rose 3 per cent to a peak of $1,586 a tonne, a price not seen for a second-month contract since May 1999. The contract has risen about 23 per cent since the start of this month. September coffee jumped more than 7 per cent to $1,740, the highest price for a nearby contract since January 2000.

Liffe said some of the coffee that was stored in Trieste had been damaged by moisture entering the bags in which it was kept. All the coffee at the warehouse has been taken off the inventory available to be delivered against futures contracts until every bag is inspected. Some of these bags may be recertified.

Since 22 July, coffee for September delivery has rocketed from $1,062 to more than $1,700, an appreciation of more than 50 per cent.

Jon Noble, head of futures trading at the brokerage Icap, said some of the speculative money that had chased cocoa prices higher earlier this summer had now piled into coffee. Cocoa prices have deflated but Mr Noble said there were "more fundamental reasons" for the spike in coffee prices. In the past couple of years, hedge funds have become major investors in commodities such as coffee and cocoa.

The coffee price has been affected by dwindling shipments from Vietnam as a result of a severe drought there last year which affected the crop. The market now must wait for shipments to begin from the next Vietnamese crop.