RNY Market Watch: July Coffee Price Update

The Coffee futures market remains at challenging levels for roasters and the month of July was no different, showing us more of the extreme market volatility of the coffee price that we’ve become accustomed to. It’s for this reason, we continue to keep you informed with our monthly market commentary. We hope this regular dose of information helps you to make the best purchasing decisions possible.

Volatile coffee prices in July

A sustained high market affects all of us. Unfortunately, it’s not the only factor contributing to the elevated coffee prices we’re experiencing. The cost of importing, freight, financing, etc. are all contributing. July 1st saw prices trade to a high of $2.3605. However, this was followed by a two week decline with the market bottoming out at $1.9460 on July 15.

This “Dip” in the market was met with interest from coffee roasters. We were happy to see slightly improved prices for our customers, even though it didn’t last long. This was the first opportunity in ten months to purchase coffee at a market basis below $2.00, breaking a 30+ year record for time the market spent above the $2.00 level.

Commodity prices on the rise

As we know from visiting the gas pump and the grocery stores, coffee is not the only commodity on the rise and the reasons are not always simple to understand. Many physical commodity markets do not adhere strictly to supply/demand “fundamentals”. Outside investors trade commodities as they would other markets like stocks and currency. That has certainly been the case with coffee. Roasters, farmers (producers), importers, and exporters certainly are active participants in determining coffee’s price.

However, another group of market participants can also sway prices in the short run. These are commodity funds and speculators who trade coffee based on non-fundamental reasons. That 40-cent selloff we just witnessed from the July highs to lows was predominantly caused by selling from these 2 groups of speculators. Not surprisingly, many other commodities and financial markets also saw big price declines as global recession fears, a strong USD, inflation, and declining consumer sentiment were front and center. While these influential factors have a frustrating impact on our cost of goods sold, when they push the market down, it creates a buying opportunity for roasters.  As of this writing, coffee prices have rebounded and are trading around $2.14.

The impact of supply & demand on the coffee price

Regardless of the impact of speculators, we focus on the fundamentals of supply and demand because ultimately they will dictate the direction of the market. Recently, there have been some conflicting fundamental data that has contributed to the up and down of the market.

Cecafe reported last week that Brazil June coffee exports were 3,144,334 bags. That number was an improvement over the 3,078,650 bags exported in June ’21, and also the last 5-year average of June exports of 2,806,483 bags. It certainly seems like coffee is making its way out of Brazil, which has allayed fears of short-term tightness in supplies. The flip side is the continued decline in the number of “ICE Certified” coffee in warehouses. That number as of July 19 was 727,722 bags, which is a 22-year low. With coffee prices stubbornly staying over $2/lb, and differentials at historically high levels, “ICE certified” coffees have been a cheaper alternative for some low-quality institutional roasters, mainly in Europe.

What’s to come

With positive June export numbers from Brazil, we hope the trend continues in July and August. This would show the world the Brazil crop is making its way to market, putting downward pressure on coffee prices. We do not expect this market to decline dramatically. However, we will be ready for the next market “Dip” with a supply of many new crop, high-quality coffees, available for roasting.

Please reach out to your trader to work on your buying plan. We have a range of tools to assist in the forecasting and pricing of your current and forward coffee needs. We’re always happy to share our knowledge, contact us.