Opinion

Arabica Future Prices Loose Steam as Outlook for Production Improves

Raw Common Coffee Bean
Roasted Coffee Beans
Brazil
Market & Price Trends
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Arabica accounts for 70% of the total global coffee trade and is enjoyed across the world for its complex flavors, smoother, sweeter, and less acidic taste. Since the beginning of 2020, Arabica coffee prices have been facing an upward pressure, either due to demand or supply-side issues. In January 2021, the rate at which prices were increasing rose as there was a decline in production from Brazil due to unfavorable weather conditions. Prices peaked by February 2022, reaching a new 10-year high of USD 258.85 per lbs, after which they started to cool down. Currently, Arabica futures are at their lowest price range in 15 months, pressured by an improved outlook for next year's crop in Brazil and concerns that a global economic downturn could curb demand.

Arabica and Robusta are the two main coffee varieties traded at a global level, of which Arabica is the more popular variety. It accounts for 70% of the total global coffee trade and is enjoyed across the world for its complex flavors, smoother, sweeter, and less acidic taste. Brazil is the largest producer and exporter of the Arabica variety, and the production trends in the country sets the tone for the global coffee market. Since the beginning of 2020, Arabica coffee prices have been pushed higher, either due to demand or supply-side issues. During the initial phase of COVID-19, the lockdown and restrictions reduced coffee consumption in many markets as cafes, restaurants, and offices closed to curb the spread of the disease. As months passed, increased household consumption rejuvenated demand, and Arabica coffee prices rebounded.

In January 2021, the rate at which prices were increasing rose as there was a decline in production from Brazil due to unfavorable weather conditions. Again in June 2021, severe frost damaged coffee cherries in Brazil’s Arabica coffee belt. A smaller crop, coupled with logistical problems, container shortages, and shipping delays resulted in a large drop in exports of all forms of coffee from Brazil and led to rising coffee prices. The coffee futures price, as traded on the International Exchange (ICE) peaked by February 2022, reaching a new 10-year high of USD 258.85 per pound on February 9, 2022, after which they started to cool down. The Arabica coffee price rally started to lose steam, and the prices of the most popular Arabica coffee beans have been falling.

Arabica Future Prices from January 2020 to November 2022

Source: ICE.

On November 3, 2022, the nearby Arabica futures contract was trading at USD 172.2 per pound The futures price is currently at its lowest price range in 15 months, pressured by an improving outlook for next year's crop in Brazil and concern that a global economic downturn could curb demand. On the supply side, frequent rains and abundant sunshine in Brazil created a very good environment for Brazil's coffee production in the 2023–24 crop. While on the demand side, the tightening of monetary policies across leading markets like the United States and EU has raised concerns about a recession, which can dent demand for the world’s most popular drink. The outlook for global coffee prices remains uncertain with rising supply and the possibility that demand will plummet in the coming months.

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