Coffee futures jumped 1.2 per cent today to a new 7-1/2-year high of $2,049 per tonne due to tight global supply, traders said.
The price of robusta coffee which is used in instant coffee, has been riding high and lending support to the premium arabica market.
Coffee prices are up more than 30 per cent on the year as buyers are worried about tight supplies and are willing to pay a premium in the current month compared with more distant delivery dates.
Robusta coffee beans have long taken a backseat to arabica, whose price has been steady but not spectacular this year.
Demand for robusta beans has risen sharply over the past two years as some coffee producers have begun to use a greater proportion of the beans over arabicas. But Vietnam, the world's largest producer of robustas, suffered a drought last year and the world started careening to a supply squeeze, a situation also played to full advantage by the big investment funds.
"There is a huge demand for robustas and there are no robustas in the market. As a result of this, the prices are skyrocketing," said Anil Bhandari of India's Coffee Board.
"Robusta prices are likely to see continued upturn until October, when the Vietnamese crop is likely to hit the market. It is expected that the volatility in the robusta prices will hold arabica prices up," Mr Bhandari added.
According to a poll in July, world supply for robusta and arabica beans in the coming year should total 122.5 million bags, just above an expected demand of 118.5 million bags, according to median estimates. Much of the price outlook for robustas also depends on when Vietnam begins its harvest.
"Between now and the year-end, many are in short position so they will keep buying, meaning prices will stay strong," said a Ho Chi Minh City-based trader.
Kona Haque, a commodities analyst with the Economist Intelligence unit, sees prices remaining high until the last quarter of 2007. "Stocks have been run down ... these have to be rebuilt and this is going to be a bullish factor in the market."
What could change the balance of demand, however, is if coffee roasters start changing the blends of the beans, especially in the United States.
"I'm sure they will start taking a look at their blends, because over the last few years they've really increased their robusta in the blend just on the cost alone," a market analyst said.