Coffee bean prices have doubled in the past year and may double again – what’s going on?
This year’s International Coffee Day feels completely different. The day was first observed on October 1, 2015, by the International Coffee Organization (ICO) to increase awareness of the commodity and the issues encountered by producers. It has typically focused on how low prices paid for unroasted beans barely cover farmers’ costs, let alone support their families.
However, not this year. The C price – the New York International Commodity Exchange’s benchmark price for commodity-grade Arabica coffee – has jumped from US$1.07 (£0.80) per pound (454g) to roughly US$1.95. In July, it reached a high of $2.08.
Arabica bean prices (in US dollars per pound)
Arabica coffee price chart throughout time Trading Economics
Because nearly all coffee delivery contracts are benchmarked to the C price, green Arabica (unroasted beans) prices have surged by more than 80% in the last year. Robusta coffee, a less expensive but less appealing option, has seen a 30 percent increase in sales. And there’s a good likelihood that these prices will continue to grow in the months ahead. We could be on the verge of a huge price correction that would propel the market higher for years.
Why has coffee become so expensive?
A succession of natural disasters in Brazil are the primary cause of rising prices. Brazil is by far the world’s largest coffee grower, accounting for over 35% of worldwide production. The volume of production fluctuates between “on” and “off” years on a regular basis, but this does not normally have a significant impact on prices since producers manage their risks through stock management and price hedging on the coffee futures market.
Yields in 2021, on the other hand, are expected to be significantly lower. This is due to a combination of a severe drought earlier in the season, which lowered the amount of coffee cherries, and recent hard frosts, which could further harm the fruit and trees. The Brazilian government expects the smallest Arabica harvest in 12 years.
