NEW YORK, Oct 1 (Reuters) - For the first time in three years, Daniel Streetman is buying coffee beans in bulk from Colombia, exploiting low comparative prices and reflecting new flexibility by U.S. roasters who had become over reliant on a single country for premium arabica.
Streetman, the buyer for New York City-based specialty roaster and retailer Irving Farm Coffee Roasters, stopped ordering from the South American country in 2011 as disease devastated crops, supplies became erratic and prices soared. Instead he bought more from El Salvador, Guatemala and Honduras.
Now, leaf rust fungus, known as roya, is threatening Central America's crops, lifting the cost for many of those grades above Colombia's for the first time in more than eight years, according to Reuters data on physical coffee prices, which are expressed as differentials above or below New York futures.
To be sure, the relative attractiveness of Colombian beans does not mean that American consumers will soon pay less for lattes, since benchmark arabica coffee prices on ICE Futures U.S. have surged more than 70 percent - or nearly $1 per pound - this year due to roya and drought in top-coffee-producer Brazil.
But cheaper Colombian beans are changing roasters' sourcing choices. After scaling way back, Streetman is again buying significant volumes from the country, which used to make up one-fifth of Irving Farm's purchases. This pleases customers who have pestered him to offer more Colombian beans, widely prized for their high quality and smooth flavor.
He made a token purchase of 100 bags in 2012 after visiting farms in Colombia that he liked. That compared 275 bags before 2011 and 375-425 bags prior to 2009, he said. The bags held from 152 to 154 lbs.
"We needed to fill a void," Streetman told Reuters last week as he brewed a coffee in the company's comfortably furnished tasting room in Manhattan's Flatiron district.
Roasted coffee from an August order for 200 bags of beans, nearly 31,000 lbs, will hit the shelves of the company's five stores in Manhattan and upstate New York in December.
Guatemalan hard-bean coffee COFGT-NYC is currently trading at a 25.5 cent premium to the futures price of around $1.96 per lb, up from 16 cents at the start of the year and well above the 17-cent premium for Colombian usual-good-quality beans COFCO-UGQ-NYC.
The fact that Central American prices have not surged more dramatically illustrates how roasters have diversified their sources after being scarred by their reliance on a single country's coffee years ago, when a disastrous 2009 crop lifted the price for Colombian arabica to more than $1 a lb over benchmark futures.
"As you're running out of coffee, instead of continuing to try to get blood from that same stone, you can go someplace else," said Nate Hrobak, a buyer at Caribou Coffee, one of the biggest U.S. chains competing with Starbucks Corp.
For an industry that prioritizes long-term relationships with farmers and steady supplies to ensure their secretive blends are kept intact, the variation of supply is significant.
With concerns mounting about the long-term impact of Brazil's worst drought in decades, being adaptable is likely to play a bigger role for roasters.
Bad weather and disease caused Colombia's coffee production to slump by nearly a third to 8.7 million 60-kg bags in the 2008/09 crop year.
Losing the world's biggest washed arabica supplier was a "wake-up call" for roasters, said Tim Castle, owner of Los Angeles-based importer Castle & Company.
Many roasters established or strengthened relationships with top Central American growers. Caribou's Hrobak slashed imports from Colombia by more than 75 percent in 2010 and 2011 in response to erratic supplies, and tapped into Guatemalan and Costa Rican high-grown beans that taste similar.
"You can never truly replace a nice Colombian coffee, but we could find things that were comparable," he said.
This willingness to alter blends meant roasters were better prepared this year and they did not buy in a panic when Central American differentials spiked and the dryness hit Brazil.
In response to the 2009 decimation, Colombia's government encouraged farmers to uproot their plants, and introduced a new, roya -resistant variety called Castillo, which helped make the country's 2012/13 crop its largest since the 2007/08 crop year.
Now, with Colombian beans back on the market, Hrobak is buying 40 percent of what he used to and plans to keep expanding.
At the same time, Central American differentials have steadily risen due to roya difficulties, with Guatemala, Central America's perennial price leader, overtaking Colombia.
Guatemalan coffee beans COFGT-NYC, which have on average traded 13 cents below Colombian beans over the past eight years, have now matched or exceeded Colombia's premium for over a year.
Neighboring Mexico's beans COFMX-HG-NYC are now on average more expensive than Colombia's as well, while differentials for Nicaraguan and Honduran coffee are slightly lower.
Castle, the Los Angeles-based importer, said he recently had to offer Colombian beans to a roaster client who had ordered beans from El Salvador that never came through.
The falling premium may suggest that Colombia's coffee producers are taking roasters' newly adjustable strategies into account as they seek to reclaim market share.
"Colombian producers are aware of the fact that their product isn't irreplaceable," said Scott Merle, a trader with La Minita, a Maine-based coffee importer. "There are exporters and mills that are still working hard to gain their customers back." (Editing by Alden Bentley)