Coffee futures are experiencing a significant decline. However, this may not necessarily translate into lower prices for your daily cup of coffee.
In August, Arabica coffee futures were valued at $2.43 per pound. As of Wednesday, they had plummeted to $1.59, marking a steep 35% decrease.
Carlos Mera, head of the agri commodities markets team at Rabobank, attributes this downward trend to several factors. Favorable weather conditions in Brazil, a key coffee-producing region, have significantly improved compared to recent years. Adequate rainfall during the fall indicates a promising coffee crop, ensuring ample supply.
“September typically marks the onset of the wet season,” Mera elaborated. “The beginning of this wet season has been particularly favorable.”
Another factor influencing the decline in coffee prices is the strength of the US dollar.
“When the dollar strengthens, prices of commodities measured in dollars, such as international coffee prices, typically decrease,” explained Carlos Mera. This phenomenon encourages farmers outside the US to sell their products as they receive higher amounts of their local currency per dollar earned.
“Farmers are more inclined to sell any stocks they may have been holding,” Mera added.
This situation marks a stark contrast from the conditions observed last year. In November 2021, coffee futures surged to their highest level since January 2012. This was due to severe drought and unusual frost conditions in Brazil, which caused significant market turmoil.
Moreover, the shortage of shipping containers had previously put roasters on edge, prompting them to stockpile supplies.
“Now, there are some delays, but they are nowhere near what they were before,” remarked Mera.
Despite this, coffee has become more expensive for consumers. According to the Bureau of Labor Statistics, coffee prices surged 14.8% in grocery stores over the year through October, not adjusted for seasonal variations.
Starbucks (SBUX) confirmed in November that it had raised prices by approximately 6% this year.
However, the improved market conditions may not lead to a significant drop in coffee prices for consumers, cautioned Mera. While coffee prices are decreasing, other expenses such as labor and distribution remain high for producers.
“I believe any price decreases we see will be modest,” he predicted.
Additionally, major coffee companies like Starbucks typically secure long-term contracts, which provide a buffer against short-term price fluctuations.
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