There’s more bad news on the horizon for the coffee market, as the price of coffee futures drops to its lowest point since 2006.
According to Bloomberg, the issue stems from a global oversupply due in large part to the world’s top coffee producer, Brazil, seeing a record crop in 2018 with another big yield expected in 2019. The slump is taking a big toll on arabica coffee, which the article notes is “one of the worst-performing commodities in the past year.”
Arabica futures for May fell as much as 2.6 percent to 94.65 cents a pound in New York. Prices have dropped about 20 percent in the past year, and speculators have been net bearish for about 18 months.
The problem of an oversupply is not one that is easily remedied. As the article notes, even countries struggling to produce are still taking hits because Brazil’s prodigious output. And for farmers, it’s not as simple as just switching crops. Coffee trees take years to grow and then produce for many years after. In order to switch crops, farmers would have to rip out the coffee trees, rendering useless all the work they have done to get the trees producing as well as removing any chance of earnings when the price rebounds. They are essentially stuck.
And the price is expected to rebound. According to Olam International, “the world’s second largest coffee supplier” (as per Bloomberg), the worst of it may be over soon. Even amid the surplus the importer expects pricing to come up, but unfortunately, the reasons why aren’t positive. Olam states that bad weather will have a negative effect on producers in Central and South American growing regions, which may in turn bring the prices back up a tick.
The issue of untenably low coffee prices isn’t going away, at least not any time soon. For their part, the SCA is investing in their Coffee Price Crisis Response Initiative to help find ways to bring up the artificially low number. But for now, coffee futures remain low. What this says for the future of coffee itself is an open question.
Top image via Tanawatpontchour/Adobe Stock