2014 is going to be a big year for coffee, and we’re not sure it’ll be a positive thing. A continuing oversupply of coffee around the world means that prices are continuing to drop; The Wall Street Journal reported recently that coffee prices fell 20% in 2013, which is down 49% since 2011.
You might be thinking this year’s low prices are a result of the coffee-leaf rust epidemic in South and Central America, but that’s not the case. The U.S. Department of Agriculture reports that decline from those areas will be compensated for by coffee production in Africa and Asia. The problem is stockpiles of coffee, and it’s worst in Brazil and Vietnam, says the USDA. Sounds as though demand from consuming countries is pretty stagnant, while coffee production continues to swell.
“I don’t think we’ve seen the absolute low for prices,” sterling Smith, a futures specialist at Citigroup, told the Wall Street Journal. “There is a strong possibility that we will see record production in a new crop of coffee.”
This story was given to reporters in middle december. There was noticeable damage done by torrential rains in the BZ coffee belt. My view as since changed and no expect sideways to upward movement in the futures market.
If those prices are tied to the C-market (and many of them are), then yes, they’ll drop too, but typically there are floors on the prices to protect the farmers somewhat.
It’s important to note, however, that when we talk about coffee prices in general like in this story, we’re referring to the C or commodity market. Those prices do affect the specialty market, but in some cases it’s more indirect than direct. (For example the C market fluctuates – sometimes wildly – in the course of a year, but specialty coffee buyers, especially in direct relationships, may have already set a price that doesn’t move as much as the commodity market, so their relationship partners can plan and budget in a more stable way.) That said, almost all coffee farmers depend on the C-market price for some portion of their revenue. Not all of their coffee can be sold as specialty-grade, and a falling C-market price can make their overall budget go out of whack and drive cost/revenue projections into the red. At current levels (and lower) the cost of producing commodity market coffee for many farmers is higher than what they can get selling it.
Will prices go down across the board – for Organic, FTO, and/or shade-grown, as well?