Why Does Coffee Production Growth Not Lower Global Prices?
Production expectations improved in Brazil and Colombia, but global coffee prices remain high. The ICO's January 2024 composite index averaged 1.76 USD per pound, up 0.4% from December, while the Robusta index hit a 30-year peak of 1.48 USD per pound on supply-side stress.
Asia-Pacific supply pressures explain the gap. Vietnam's Central Highlands coffee is quoted at 77 million to 79 million Vietnamese dong per tonne, with farmers holding back sales while traders with forward contracts buy at higher prices. Red Sea shipping disruptions and volcanic eruptions in Indonesia, including Mount Merapi, cut local output.
Recent data from the International Coffee Organization (ICO) shows that in January 2024, the composite coffee price index rose slightly month-on-month, with the Robusta price index even hitting a 30-year record high. Although production expectations have improved in several South American producing countries, with Brazil and Colombia performing relatively strongly, factors such as tight supply in the Asia-Pacific region, disruptions to Red Sea shipping, and volcanic eruptions in Indonesia have combined to keep global coffee prices persistently high. This article will review the latest developments across producing regions and changes in the supply-demand landscape.
Data recently released by the International Coffee Organization (ICO) shows that in January 2024, the monthly average of the composite coffee price index reached 1.76 USD/lb, with prices fluctuating between 1.71 USD and 1.85 USD during the month, up 0.4% from December last year. At the same time, the Robusta price index surged to a 30-year peak of 1.48 USD/lb.
The reason the Robusta coffee price index set a new record lies in a crisis on the supply side, with Robusta-producing countries in the Asia-Pacific region bearing the brunt. In addition, the Red Sea situation has also brought an impact that cannot be ignored.
In Vietnam, the expected price of coffee from the Central Highlands has once again risen to 77 million to 79 million Vietnamese dong per tonne. Local traders report that coffee farmers are generally holding back sales, hoping to close deals at higher prices. On the other hand, some traders, because they have already signed forward sales contracts with buyers, are under pressure to fulfill them and can only buy coffee beans at higher prices, which may push prices past the 80 million Vietnamese dong threshold.
Indonesia has recently been affected by a combination of weather, earthquakes, and volcanic activity. According to a notice from Indonesia's Center for Geological Disaster Technology Research and Development, multiple volcanoes in the country have erupted in succession, including one of the most active volcanoes in eastern Java, Mount Merapi. This situation has directly led to a decline in local coffee production.
The Red Sea issue also continues to intensify. Because Houthi armed groups have attacked ships passing through the Suez Canal, many shipping companies have chosen since December to suspend services or divert around the Cape of Good Hope. This has sharply increased both transport costs and time, with container freight rates along the heavily affected Europe-Asia route soaring 150%, and rerouting also bringing about a three-week delay. Affected by this, many traders have reduced their coffee purchases in the Asia-Pacific region to control expenses.
At present, only Brazil and Colombia have shown relatively outstanding production and export performance, which is why Arabica coffee prices have fluctuated relatively moderately.
In Brazil, although weather forecasts in recent weeks have been mediocre, with some producing regions receiving less rain and experiencing drought, Arabica coffee production is still on the rise, while Robusta production has clearly declined. Reports say that even though current Robusta coffee prices remain high, Brazilian producers are likewise unwilling to sell the Robusta coffee beans they hold.
In Colombia, coffee prices have begun to stabilize due to the recovery of the peso exchange rate and the decline in fertilizer prices. Combined with improved weather conditions, it is expected that the country's coffee production will increase by about 3% in the 2023/24 crop year. Several coffee-producing countries in South America have also indicated that with stable weather conditions, production is expected to improve and rise. However, according to forecasts by the International Coffee Organization (ICO), global coffee production in 2023/24 will increase by 5.8% year-on-year to 178 million bags, but global coffee consumption will also grow by 2.2% to 177 million bags, leaving an overall surplus.
The above content is compiled by CoffeeHunters, a coffee news website.
