Coffee prices have rallied once again this month we are testing the highs of the post 2021 frost era for the second time in just a few months. The times are unusual in the coffee market because prices have remained elevated since the frost of 2021 nearly 3 years ago to the day. Coffee usually exists in a bullish or bearish trajectory on longer timescales and its atypical to have prices moving essentially sideways in a 100 c range between 150 and 250 for 3 years.
Coffee normally heads towards familiar levels like the 100-140c range that felt comfortable in the 80s and early 2000s, or the sharp 250- 350c peaks that indicate a passing crisis. Instead, the coffee market has experienced an extended period of elevated prices that are neither approaching the normal highs nor the normal lows.
In this article we will discuss the unusual circumstances that got us here and the potential way forward for coffee prices.
As usual in the coffee market, we look to Brazil for the blessings and ills of the coffee markets fortunes.
The Initial Rally
Brazil is the largest producer of coffee and the annual variability in production of coffee in Brazil is often the largest factor in global coffee prices. Coffee prices were low (near 100c) in late 2020 due to a record large Brazil crop and an abundance of coffee, however the market started picking up in 2021 as the market was expecting some modest deficits due to drought and the off-cycle crop. Brazil’s crop runs on a biannual cycle which means that the country produces alternating larger and smaller crops.
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However, the rare and devastating frost of 2021 exacerbated the incoming deficit by extending it. The frost crippled the upcoming on-cycle crop and indeed it was the worst on-cycle crop in at least 5 years. This is even worse than it sounds since the production in Brazil has been on a steadily increasing trajectory for a century. The market reacted accordingly with a rally that peaked around 260 in early 2022.
The Recovery
Ever since that frost rally that peaked in the early part of 2022, the market has been trying to recover back towards a more normal range (120-140c). Consumers adapted to high prices by consuming the certified inventory (the supply available for the futures market) which caused calendar spread inversions and upended the traditional dynamic of carrying coffees in destination markets in Europe and North America.
This was exacerbated by Covid supply disruptions that bottlenecked shipping and further incentivized destination markets to draw down inventories.
Despite all of this prices began to decline because the market had been expecting a significant improvement for the 23/24 crop year (the harvest following the frost-damaged 22/23 crop) which materialized and futures prices declined. Even still, the 23/24 crop was an off-cycle crop (although a relatively larger off-cycle) and it was the 24/25 crop that was expected to rebound to pre-frost production levels and perhaps even pull in a record crop size.
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Our survey of Brazilian coffee farmers in February of 2024 showed extreme optimism for the coming crop with expectations for the largest crop in Brazil’s history. This abundance of coffee would replenish the world stocks and bring the market back down into the normal range.
New Problems
Unfortunately, the 24/25 crop (which is harvesting now) is now looking rather disappointing and we have seen multiple crop analysts and tradehouses reduce expectations for this crop. Our latest Brazil coffee farmer survey conducted in late June of 2024, now tells a completely different story.
Dryness has deteriorated the bean size during development; there were warning signs, but the extent of the damage was not completely known while the coffee was on the tree, but now that it is being harvested and processed it has become more clear. It is especially true in the quantity of larger bean sizes which are much fewer this year, but the net effect for coffee production as a whole has been a reduction in the expected amount of coffee.
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From a low of 147.50 in October of 2023, the market has rallied again and again. First moving back to the 180-200c range late last year, then rallying briefly to 240 in April, and now most recently from 220 to 250 in May. The recent rallies in coffee, especially since May, has been a gradual realization that the Brazil 24/25 crop was going to underperform.
Unfortunately, this has been compounded by additional problems in the Robusta market and expectations for the world’s second biggest coffee crop (and largest robusta coffee crop) in Vietnam.
Looking Forward
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