Coffee futures (green beans) are trading at nearly double the prices that they were last year at this time. Wholesale coffee prices have almost doubled in the last year, edging toward highs last seen in 1977 and prompting many companies to raise retail prices 10 to 25%.
In researching some of the probable causes, it seems that the spike is influenced by at least four factors; weather, supply, demand and speculators.
Weather
Weather patterns around the world have changed dramatically and we have seen many natural disasters in the last year or so i.e. intense hurricanes, tsunamis, earthquakes, uncommon rain durations, low cloud cover and less sunshine in coffee growing countries. Some of the major exporting countries, including Indonesia, are suffering from smaller crops this year because of drought, flooding or other inclement weather.
Colombia and Brazil, two of the three largest coffee-producing nations, have been devastated by El Nino and heavy rains over the past two years, cutting their coffee yields by about 30%. Columbia discovered a fungus that has killed a lot of the country’s crop. The disease will take a few years to cycle through, likely stunting future harvests.
These weather anomalies directly affect the farmer’s decisions on where to plant and if they will invest in any expansion on their farms. This all translates to less availability and higher prices.
Supply
Supply issues, including rising demand from developing nations, have driven up the cost of coffee, corn, cocoa, sugar and cotton to historic highs. The farmers experience this cost increase because they feed the pickers on their farms so when the cost of corn in Mexico tripled due to frost, they have had to ask more for their crops because the same conditions that are hindering their yield are impacting the cost to produce. And then there’s oil, which continues to climb, increasing costs to transport those beans from the countries that produce them to the nations that drink the coffee.
Brazil, the largest coffee producing country in the world is seeing a drastic reduction in stock. Luckily, the overall coffee crops increased 8 percent last year on the strength of supplies in Ethiopia, the Ivory Coast and other countries, according to the International Coffee Organization. Many other countries are trying to be recognized by the Specialty Coffee community such as Laos, Nepal and Burundi so there is hope that supplies will hold to meet demand.
Demand
The rise in coffee prices has roots in the growth of China, where upwardly mobile workers are fueling escalating demand. It is also reported that a huge demand in India has been spurred by people under 25, which will make up over 55% of their population by 2015. Formerly known for drinking tea, this could add billions of coffee drinkers to the mix.
So stay with me here a minute! As of today, the ranking of countries that consume the most coffee per kilogram are as follows:
1. Norway
2. Finland
3. Denmark
4. Sweden
5. Netherlands
6. Switzerland
7. Germany
8. Austria
9. Belgium
10. France
11. Italy
12. United States
Do you see where I am going here? Now when you get China, India and the other most densely populated countries hooked on a good cup of java, what will happen to supply and demand? I am just saying….! Also now, more than ever before, coffee consumption in the countries of origin is being reported as people are starting to enjoy their own varieties. In the past almost all the beans were exported and the local people drank an instant coffee to remain nameless.
Commodities
Finally, coffee companies and analysts say speculators in the market, rather than supply or demand, is to blame for most of the increases. We have seen how a little attention to the darlings that are traded on the open market has turned entire fortunes around, both good and bad. It is not conspiracy theory to think that the same forces are at play but that is another article for another time.