Coffee Prices Explained
Coffee prices remain elevated as supply and demand for this commodity steadily go north. The Houthi’s attack on passing merchant vessels on the Red Sea caused a soaring 150% increase in container freight rates on the Asia-Europe route. Thus, coffee prices in Europe surged.
Additionally, Vietnamese coffee will continue to swell as the country experiences a shortage. The Mercantile Exchange of Việtnam announced that coffee prices increased by 1.85% ( Arabica ) and 0.42% for Robusta.
Why are coffee prices fluctuating?
1. Climate Crisis
The changing and unpredictable weather temperatures greatly affect the size and quality of coffee produced. Additionally, climate disasters such as droughts and floods can adversely impact coffee production and its prices.
Brazil, the largest coffee producer in the world, expects a 30% reduction in Arabica production in the coming years due to extreme weather conditions.
2. Supply and Demand
Coffee is a largely traded commodity and its market price highly depends on the balance between supply and demand.
The rising influx of surplus coffee threatens premium coffee prices which decreases its marketability. On the flip side, the shortage of coffee beans may result in a price increase due to high demand and limited supply.
3. Production Costs
Labor, fertilizer, and transportation all add up to the factors that lead to the increase in coffee prices.
To maintain profitability, coffee farmers will sell their produce at a price rate that keeps their business livelihood.
4. Global Supply Chains Disruptions
The global pandemic in 2019 changed the course of cross-border shipping and caused major problems for farmers, producers, and shipping companies.
Until today, this is still an ongoing issue as trading policies are stricter under health and safety protocols. Furthermore, this delay contributes to a coffee shortage which leads to a higher need and price increase.
Which variables impact the price of coffee?
- Climate Crisis
- Supply and Demand
- Production Costs
- Global Supply Chain Disruptions
- Political Instability
- Market Speculation
Where does coffee come from?
The coffee plant is native to the Ethiopian plateau, specifically grown in Ethiopia and Sudan.
Today, coffee is grown around the world, particularly in Africa, Central and South America, and Asia with the top coffee producers mainly from these continents such as Brazil, Vietnam, Columbia, Indonesia, and Ethiopia.
Trade and colonization largely drove the spread of coffee around the world with its first entry into Europe through the port city of Venice in the late 16th century which culminated in the opening of the first coffeehouse in the city.
Additionally, it marked the expansion in the Americas in the 18th century and further traveled to Asia and Oceania in the 19th century. Presently, there are 4 commercially grown coffee varieties.
This mild and aromatic variety is the most popular and widely grown in Brazil, Colombia, Ethiopia, Honduras, and Guatemala.
This strong, bitter, and high-caffeine variety comes from Vietnam, Brazil, and Indonesia.
This unique, smoky, and woody taste coffee variety largely comes from the Philippines, Malaysia, and Liberia.
Closely related to Liberia and has a tarty and fruity flavor. This comes from Vietnam and the Philippines.
What is the future price of coffee?
Coffee prices are treading the volatility of its supply chain route as the Red Sea channel is constantly hounded by Houthi militants which makes it hard for passing merchant vessels.
As a result, bean deliveries from Vietnam and Indonesia are delayed by 3 weeks due to route diversion ( Cape of Good Hope ). These changes will accumulate fuel charges that will affect coffee prices in the market.
Additionally, the coffee shortage is further tightened as Vietnamese coffee growers delay their sales with expectations of higher prices.
Overall, coffee is grown and harvested throughout the year but its production varies according to the country’s seasonal cycle. Since its consumption is increasing yearly, market analysts and investors see a bullish coffee investment trading at $3.72 per pound in 2030.