RNY Market Watch: A look into coffee price volatility

Coffee prices, as measured by the ICE KCZ’22 contract, have continued to be extremely volatile over the past month. Several variables have caused this volatility, which saw prices rise to a high of $2.4295 on August 25, and down to $2.1085 on September 19. Let’s take a closer look at the factors contributing to September 2022 coffee price volatility.

 The downward pressure explained:

Beneficial rains in Brazil’s coffee-growing regions beginning in August are forecasted to continue into October. This has helped early flowering development for next year’s crop, easing concerns that the crop size would again be low.

Concerns about demand destruction for coffee based on continued high global inflation. The challenges seen by the global economy in combatting inflation, and fears of worldwide recession, have lifted the US $ index to 20-year highs. The US $ remains a safe haven in uncertain economic times. A strong US $ typically puts pressure on commodities prices.

Improved global shipping logistics have helped the world’s supply chain. Backlogs at major ports have lessened. Additionally, there have been recent reports of lower costs for shipping.   

The Green Coffee Association reported on September 15 that green coffee inventories in US warehouses rose 3.6% month/month. This brings green coffee inventories to 5.2% year/year to a 2-year high of 6,450,086 bags.

Why coffee prices are still above $2/lb explained:

CONAB, a Brazil government agency, lowered its estimate for Brazil coffee production number for the recent harvest crop. The number lowered to 50.38 million bags (32.41 arabica, 17.97 robusta) from a 53.4 million bag estimate in May.

Safras and Mercado cut their Brazil 2022/23 coffee production estimate to 58.2 million bags, from a previous estimate of 61.1 million bags

Cecafe reported Brazil August coffee exports fell -2.5% y/y to 2.8 million bags. This is the second month in a row that the export number was lower year over year, and also below the 5 year average.

The Colombian Coffee Growers Federation reported that Colombia’ August coffee exports dropped -21% y/y to 872,000 bags.

ICE Certified warehouse coffee fell to a 23 year low of 484,408 bags.

September 2022 coffee price volatility takeaways

So as you can see, there are both short term bullish and bearish data and scenarios that help to continue the unusual coffee price volatility. Expect to see this trend continue for the foreseeable future. The best path forward at the moment is regular communication with your Royal NY rep. We have really forecasting tools that can aid in the planning of future inventory needs…especially as we approach coffee’s busy holiday season.

Let us help you plan, let’s be ready to lock in some forward coffee positions when the “C” take its next dip. Volatility is not going away, but good preparation and a solid purchasing plan will allow you to lock in when the next “C” market opportunity presents itself. Reach out soon to discuss available coffees, what’s cupping best and when to lock-in prices.  Don’t hesitate to contact us today!