%Coffee traders are facing $7 billion U.S. of margin calls after placing big bets on the commodity over the past month.
Prices for coffee beans have risen sharply this year owing to disappointing harvests around the world, notably in Brazil, the world’s leading producer of both Arabica and Robusta beans.
The shortage has led Arabica coffee bean prices to rise 240% over the past six months, peaking at just under $320 U.S. per pound on Nov. 25.
In the last week, coffee bean prices have fallen 6% to $303.47 U.S. per pound.
The sharp rise in prices led many commodities traders and producers to take out loans, or buy on margin, to either procure the beans they need or place options bets on the price.
Now, with coffee bean prices falling, as much as $7 billion U.S. worth of margin loans are being called in, leaving traders and producers scrambling to square their finances.
The situation is leading to panic in New York commodity trading, say some analysts.
Atlântica Exportação e Importação SA, for example, which says it accounts for 8% of Brazil’s Arabica coffee bean sales, last week petitioned a court for more time to negotiate with creditors to avoid filing for bankruptcy.
Other coffee bean producers and traders are seeking a grace period of up to 60 days to repay the margin loans they took out to buy or bet on coffee bean prices.
Analysts add that they expect more chaos in the coffee market in coming weeks as prices for Arabica beans are currently at their highest level in more than 40 years.
Some analysts warn that surging coffee prices have pushed the market to a breaking point, mirroring problems seen with other commodities.
Earlier this year, cocoa prices climbed to their highest level in data going back to 1960 due to a global supply shortage, triggering defaults and litigation among traders and producers.