Welcome to our latest edition of Market Watch! Andrew Blyth & Tom McLaughlin are here to provide you with the latest insight into coffee bean exports, a continuously rising “C” market price and more as of September 2024.

Is a high coffee price the new normal?

Coffee prices continue to be very volatile and are trading at one of the highest price points we’ve seen in 2024. The active KCZ ’24 futures contract is currently at $2.7000. After trading as low as $2.2015/lb. on August 5th, it traded as high as $2.7180 today, Sept 16th. This was the highest futures price in 13 years.

As we all know, prices have been stubbornly high for the better part of almost 3 years. It seems to beg the question: has coffee entered a new realm of pricing? While we have seen coffee futures prices trade over $2.00/lb. a handful of times over the years, prices would eventually revert back to somewhere between $1.25–$1.40/lb. That just seemed to be the normal price for coffee. This made sense for so many years, like when the ICO tried to keep the average coffee bean price in the range of $1.20–$1.40 in the late 1980s. Although that agreement didn’t last very long, the market would tend to find its ‘value’ between those prices.

What affects the price of coffee other than supply/demand?

It’s true that coffee prices are certainly driven by supply/demand. However, we’ve seen a dramatic rise in prices over the last few years as well as the ability for prices to mostly stay at these high levels.

The futures markets provide for many different segments of traders. In the coffee market, roasters, producers, and coffee trade houses use the futures market to hedge coffee and manage price risk. Another category of trader belongs to the ‘non-commercial’ segment, consisting of managed money funds and speculators. These deep-pocketed Wall Street investors can tremendously impact both the short and intermediate terms for prices. Unsurprisingly, they are fueling the continued rise in price. Moreover, their presence in the market is larger than it’s ever been, further explaining the persistently high levels we’ve seen in the past year.

How does global production factor in?

Labor shortages as well as the high price of fuel and fertilizer have absolutely raised the cost of production for many coffee bean farmers. For decades, the price of coffee never seemed to be adjusted for inflation. So, maybe the last 2-3 years are making up for that.

Brazil is the leading producer of arabica coffee and the second largest producer of robusta coffee only behind Vietnam. From July ’23 to July ’24, Brazil exported a record 47.1 million bags. Although worldwide robusta production has seen deficits in supply/demand over the last couple of years, Brazil has stepped up in a big way to supply the world with coffee.

That being said, many in the industry are concerned with recent weather patterns in Brazil. While mid-September is a bit early to worry about drought and its impact on Brazil’s next harvest, weather in coffee-growing regions has been both unusually hot and dry for the past couple of months.

Lastly, logistics play a factor in prices. Container shortages, drought in the Panama Canal, unrest in the Red Sea, and more have delayed coffee deliveries from producing countries to world markets and have helped keep prices steady as the coffee trade scrambles to fill its near term needs.

What does this mean for you?

As an importer or roaster, logistical issues create as much of a concern for supply as the underlying high market price does. If you traditionally buy coffee ‘SPOT’, then let’s start a conversation about reserving & securing your forward needs, especially as we approach the historically busy 4th quarter. Planning your future inventory needs can shield you from inevitable transit delays and provide you with stable pricing. While current pricing is not at all attractive compared to past decades, knowing your cost basis for green coffee will help chart you a clear path forward when establishing your wholesale, retail, and per-cup prices.

In the near term, expect these volatile price conditions and logistical challenges to continue. Let us help you prepare with our robust forecasting tools, a great logistics team, and experienced traders. Give us a call; we’re here to help.

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