Coffee Market Update - November 4th, 2024

There has been a lot of chatter about the coffee market in the past several months as it remains at historically high levels for a prolonged period. I wanted to share some insights as to why this is the case, and where we expect the market to go in the coming weeks and months.
So what has caused the market to do what it's doing:
  1. Speculators - Market traders/speculators have been trading coffee at record levels, manipulating the price and driving up the market through paper trades in huge volumes. They have been ahead of the trade (roasters) all year, and as such have been able to take advantage of that disparity leaving us all chasing the market upwards. We are potentially starting to see their position ease up, as the situation in the Middle East has made oil the vulnerable and volatile commodity of the moment.
  2. Inflation - because of the nature of the commodity market, farmers have traditionally had very little control of prices and have therefore not been able to get in inflationary increases like a typical business. This resulted in a tighter supply of coffee, and effectively forced the market upwards. It's reasonable to believe that this portion of the increase will never retrace, showcased by Fair Trade increasing their official minimum price from $1.60-$1.80, representing the break even/cost of production.
  3. EUDR - the EU's attempt to curb deforestation, while admirable and important, has been rolled out disastrously, and threatened to force small holder farmers (<2ha) to rip up their coffee for easier/subsistence crops or products with an easier path to market. While it would seem that coffee being less available to the EU could be a boon to North America, it is the potential pressure, disruption and decertification of A LOT of coffee currently warehoused in Europe, that made this a bull-ish factor in the market. Bloomberg reports that it will be delayed for at least a year, after a major lobbying push to kill the bill, which has eased supply concerns somewhat.
  4. Vietnam's drought - it has had a major impact on this year's harvest, and could be felt for years to come depending on the level of damage. While the impact has been mostly felt in the supply of Robusta, the two coffee commodities are unprecedentedly entangled, so a battered robusta supply has caused all-time high prices that are creating a high floor price that Arabica wont be able to break through until Robusta settles.
  5. Brazil's drought - this is the reason for the most recent rally, from $240 all the way up to $2.75. Brazil's main coffee areas had historically low rains this fall, until mid-October (much later than usual), which could severely impact next year's crop. Thankfully, recent rains have brought essential moisture to coffee-growing areas after prolonged drought stress, supporting crop development and helping drive down prices from the peak.
There has been a good number of news stories about the rising costs of coffee, a few of which I have been a source on, that will hopefully help folks understand the underlying narrative of the market situation. Major grocery brands have started to push through increases and a number of retailers have announced, or are preparing to, as well (across North America). Here are a few:
Looking forward, there would need to be major updates/improvements on 2 or more of the 5 points above to see prices really retrace downwards, but for now, the general consensus is that we are in a much higher coffee market for the long haul, with a sub $2.00 market difficult to imagine for most. And with that in mind, Farmers will undoubtedly benefit from these prices, and consumers will have to acclimate to the new cost environment unless something drastically changes.
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