Global Coffee Price Recovery to Take Years

Published 2021년 11월 12일

Global coffee prices are forecast to remain high for years as the market grapples with rebalancing supplies geographically due to container shortages and port congestion causing transportation disruptions in the global coffee supply chain. In October, the prices of Arabica coffee in the US rose to their highest level in seven years due to reduced production forecasts from Brazil, the leading global producer, following drought and severe frost.

The C price, the benchmark price for commodity-grade Arabica coffee on the New York International Commodity Exchange, increased from USD 1.07 per pound to about USD 1.95 per pound in 2021, with prices rising as high as USD 2.08 in July. Most coffee contracts are set against the C price, leading to green Arabica prices rising by more than 80% and Robusta prices rising by over 30% during the past year. Prices could increase further in the coming months and in years to come.

During the Swiss Coffee Trade Association's (SCTA) recent annual conference held in October, traders and analysts highlighted that challenges in transportation prevent supplies from prompt shipment to meet demand in several markets, increasing coffee prices. According to Rabobank, an agri-commodities market research firm, there is a global deficit of about 4 to 7 million bags. This deficit comes as exports from leading coffee producers such as Brazil decrease due to shipping bottlenecks.

Factors influencing the surge in prices

The main reason for surging coffee prices is a range of environmental issues in Brazil, the leading global coffee producer, accounting for 35% of the world's production. Coffee production in Brazil has fluctuated for years. However, these fluctuations have not affected prices as farmers alleviate their risks through stock management and hedging prices utilizing the coffee futures market. However, production in 2021 has been significantly lower due to severe drought, which decreased the number of coffee cherries harvested, and extreme frosts that damaged the fruit and the trees. The Brazilian government forecasts that this year's Arabica harvest will be the lowest in 12 years. Since the maturity of coffee trees can take up to five years, it could take several seasons until production normalizes. Frost, in particular, leads to severe damage affecting about two-thirds of the harvest. Therefore, the impact on global coffee supplies may be long-lasting, and prices are forecast to rise above USD 4/lb in the coming months.

Market Outlook

Surging coffee prices could boost coffee production in Colombia, Central America, and Africa, leading to a more balanced supply. However, this could take years to materialize. COVID-19-related lockdowns have also increased global coffee demand, putting added pressure on coffee prices. A solution to the price surge could be utilizing more Robusta in coffee blends rather than Arabica. Robusta is cheaper than Arabica, and this would make blends more affordable for consumers. However, this may not be possible in the short term due to the severe COVID-19 restrictions in Vietnam. Vietnam, the second-largest coffee producer, accounts for 18% of the world's coffee production. Vietnam is forecast to harvest an improved yield in the 2021/22 season, adding to the large carryover stocks from the 2020/21 season as suppliers struggle to export their coffee to global markets. COVID-19 restrictions in Vietnam led to disruptions in transportation from the central highlands to Ho Chi Minh city, the country's export hub. Similar concerns are affecting several coffee-producing nations.