Welcome back to another Market Watch from Royal NY! Another month has come and gone and no big surprise, there’s a lot to talk about in the world of coffee. Fortunately for our roasting partners, the news is much better than recent market updates. Green coffee prices have plunged recently as there are signs that ample supplies of coffee are a reality and demand will be met. Prices as measured by the ICE KCZ’22 contract traded under $1.8700 on 10/21, which is a 13-month market low.

What caused the drop in green coffee prices?

Although there are many countries that produce coffee, coffee prices will undoubtedly be most influenced by what happens in Brazil and Vietnam, the 2 largest producers of coffee in the world. Recent news seems to indicate that thoughts of supply shortages may be overblown. After reporting lower export numbers y/y for both July and August, Cecafe (The Brazilian Coffee Exporters Council) reported last week that Brazil’s September green coffee exports rose 7.1% y/y to 3.1 million bags. This was also more than the September 5 year average of exports. Plentiful rain in Brazil’s coffee growing regions the past 2 months has helped flowering develop and also given traders a sign that next year’s Brazil crop may be larger than previously thought. Another good sign for future supply.

Vietnam’s General Department of Customs reported on Oct 7 that Vietnam exported 1.73 million metric tons of coffee in the 2021/22 season that ended Sept 30, which was a 4-year high.

The US $ dollar has surged to 20 year highs as the Federal Reserve has pushed interest rates significantly higher to try to tame inflation. In theory, for global commodities, like coffee, priced in US dollars, a strong dollar pushes commodities prices lower. Looking at US coffee stocks, the GCA reported last week that US green coffee supplies in US warehouses were 6,378,478 bags, which was down -71,608 bags at the end of August, but was up +5.2% y/y.

ICE certified warehouse coffee stocks continue to decline, last reported at 392,727 bags, still a 23 year low, but the coffee trade is beginning to accept that under current conditions, this is a flawed way to measure supply and demand.

How to approach the recent fall in coffee prices

That’s the latest and greatest on the metrics that influences prices, so what does all of this mean in practical terms? It means if you bought coffee today you’d be paying the lowest price seen since mid-2021. Not bad considering the price increases seen on the roasted side of the coffee pricing spectrum. For all intents and purposes, this is a decent time to buy coffee. We’re not testing the dramatic market lows experienced in 2018-2020 but I don’t know if we’d want to…cost of production for our producing partners is higher, and the market trading down to $1.00 would not be healthy.

In our opinion, we are getting near market levels that are reasonable for all. We suggest buying some coffee now if you haven’t already. Extend your coverage beyond the recent 30-60 day window we’ve been recommending and begin to think about your Q1 needs. It’s a good place to start and there are lots of great coffees available that are cheaper than they were just a few days ago.  

As always, contact us to discuss how you should approach this market change in further detail.