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Global Supply-Demand: The Effect of Low Prices

The supply of coffee has been only mildly affected in the 2018/19 crop year, but 2019/20 almost certainly see a larger supply drop of washed arabica coffees in light of prices trading below cost of production in most producing countries. While Brazil continues to produce high volumes, helped by a favorable currency, the coffee sectors in Ecuador, Costa Rica, Guatemala, El Salvador and Kenya (among other) are threatened.
On the other hand, demand is doing very well. Record exports out of Brazil so far this crop year have not resulted in stock accumulation in destination countries, pointing at above average consumption growth, possibly incentivized by low prices. Where is demand growing?
But for the time being, the world is having a surplus of coffee and exchange-certified stocks are increasing. That may depress prices even more in the short term, as shown by a simple stock -price correlation, before there is a chance of a significant recovery.
In any case, if we continue with a low price trend, the coffee industry will face a large drop in production in mild coffee producing countries, and potentially consumer backlash as we have seen in 2002.

Category: Trading & Commerce

Lecture Room 1

Target Audience:  Roasters, Traders, Producers, and Coffee Enthusiasts