Why are coffee prices rising again?
A sense of foreboding is spreading through the global coffee business in the early days of 2024 as coffee prices rise again across the globe A complex drama is unfolding, driven by the whims of our changing weather patterns and global market forces. This drama is as familiar as it is unwelcome, repeating itself again and again over the decades as the prices of Arabica coffee and Robusta rise and fall. After a brief respite in the early part of 2023, coffee futures are rising again, both in Arabica and Robusta. The latest chapter sees a mix of bullish and bearish factors influencing coffee prices.
On one hand, Arabica coffee is experiencing a surge in prices, hitting a four-week high, while Robusta climbs to a two-month high. The cause? Brazil’s recent dry weather, particularly in the Minas Gerais region – a key area for Arabica production – which received only 53% of its historical average rainfall. This lack of rain threatens the coming coffee crops, sending futures prices upward.
Vietnam, by far the world’s buggest Robusta producer, reports a significant monthly increase in its coffee exports, but a year-over-year decline. More troubling is the projection of Vietnam’s 2023/24 coffee production, anticipated to drop by 10% due again to drought during the cherry forming season, marking the smallest crop in four years. Even though Dreambeans and other specialty coffee producers never use Robusta beans, an in crease in the price of these basic beans can have a knock-on effect on the price of Arabica, as a substitute good. Instant coffee makers have even been known to buy Arabica, when the price of Robusta gets too high.
An increase in the price of Robusta, caused by severe drought in Vietnam is having a knock-on effect on the price of better quality Arabica beans.
Near record low coffee inventories are spiking uncertainty about future supply, with a corresponding increase in prices.
Record low coffee inventories
Low coffee inventories are another critical factor. International Coffee Exchange (ICE) monitored Arabica coffee inventories have dwindled to a 24-year low, while Robusta inventories are only marginally above record lows. This potential risk to supply is sending coffee futures upwards.
However, not all news is bullish for coffee prices. The Brazilian Real’s weakness against the dollar is encouraging Brazil’s coffee producers to sell more coffee for dollars into export markets, potentially dampening prices. Additionally, an uptick in global coffee exports, as reported by the International Coffee Organization (ICO), could exert downward pressure on prices.
Yet, in a further twist, the ICO’s projection of a significant increase in global coffee production for the 2023/24 season, driven by an exceptional crop year, suggests a potential surplus in the market. This forecast is somewhat offset by signs of higher coffee exports from Brazil and Honduras, which might depress prices.
El Niño weather events aren’t helping.
Robusta coffee prices are rising at present, largely due to the Vietnam Coffee Cocoa Association’s projection of a production decline in Vietnam for the 2023/24 season. The USDA’s Foreign Agricultural Service (FAS) echoes this sentiment, citing unfavourable weather due to the El Niño weather pattern.
The El Niño weather event, declared by the U.S. Climate Prediction Center, is likely to have mixed impacts. Typically, El Niño brings heavy rains to Brazil and drought to India, affecting coffee production in these regions. It might also bring drought to Vietnam’s coffee areas, further complicating the supply situation.
The unpredictability of El Niño weather events raises concerns about global conditions and causes uncertainty.
Uncertainty in coffee prices for 2024
So, as we head into 2024, the global coffee market is in flux. A variety of interwoven factors – weather patterns, production forecasts, export trends, and inventory levels are each exerting an influence on the price of the coffee in your cup. Each element plays a role in shaping the market, making the world of coffee trading as rich and complex as the beverage itself. All of us are hoping that, the current rise in prices is simply a seasonal uptick, not the start of another sustained rise in prices.
By Pat McArdle