Capital.com Research TeamAlongside other products grown by farmers, like cotton or cocoa, сoffee trails crude oil as the most actively traded commodity. Swings in coffee prices are closely watched by investors as well as consumers. After all, coffee price changes can have repercussions in terms of what a retailer can charge for a “cup of joe” – the world’s second most popular hot beverage after tea.
If the coffee price forecast moves higher then retailers will likely start cautioning consumers to expect to pay more for their caffeine fix. Similarly, a lower coffee price means retailers can either pass along some of their savings to the customer or lift their profits to the delight of equity holders.
The Intercontinental Exchange Futures is home to the Arabica coffee beans and looked at as a benchmark for arabica coffee as a commodity. Arabica is the world’s most consumed type of coffee so naturally, the coffee price outlook is a key focus for many investors.
Coffee market analysis
The price of one pound of Arabica coffee dipped below the $1 mark in 2019, which is around one-third of the value of its 2011 peak historical coffee price of around $3.06 per pound. The commodity traded as low as 87 cents in May and was hovering around $1.05 in mid-November.
Trade US Coffee Arabica Spot CFD
One of the reasons to attribute the low price of coffee is weakness in the Brazilian national currency, the real. The reason for this is simple: Brazil is the world’s largest exporter of coffee that is priced in American dollars. A rebound in the real could lift coffee prices but as it stands now the real is hovering near a multi-year low versus the greenback.
Coffee price forecast
2020 could be a rebound year for arabica coffee forecast based on simple supply and demand and recent coffee price news. Global consumption is forecasted to hit a record high of 167.9 million bags of coffee (each bag consists of 60kg worth of beans), but total global production is expected at 169.1 million bags.
The data is taken from a US government report Coffee: World Markets and Trade (June 6). The report makes it clear the global coffee market will shift from oversupplied conditions to nearly break-even.
More recently, as of November 5, 2019, the International Coffee Organisation released estimates for a stronger coffee price forecast. The agency modelled a global coffee deficit of 502,000 bags in 2019/2020, which would mark a dramatic turnaround from the 3.7 million bags surplus in 2018/2019.
In addition, the estimates call for a global coffee production decrease of nearly 1 per cent to 167.4 million bags in 2020. At the same time, global coffee consumption will rise by 1.5 per cent to 167.9 million bags.
Early signs of a coffee price trend
Despite coffee prices trading significantly closer to its multi-year lows than highs, Brazil’s largest coffee grower, a company named Cooxupe, is screaming warning signs to support coffee prices going up, according to Bloomberg.
How bad is it? Well, Cooxupe ran out of coffee beans in October so it could not ship supply to customers.
“Funds are overselling coffee in New York while in the physical market there is no more supply and demand has been strong,” Lucio Dias, commercial director told Bloomberg. “We don’t know where the world will get coffee in the next six months.”
Demand from China
Brazil is a key supplier of coffee and China will play a role of the key consumer in 2020 and beyond.
Starbucks has ambitious plans for China and opened 600 new stores in fiscal year 2019. The company plans to accelerate the speed of new store openings in the coming year with the ultimate goal of overseeing thousands of new locations over the coming years.
But a rival chain Lukin Coffee, based in China, is standing in Starbucks’ way. To counter Starbucks’ presence, the local chain is opening the equivalent of eight new stores each and every day.
Naturally, a race to dominate the coffee market in the world’s most populated country could impact coffee prices. After all, the battle consists of thousands upon thousands of stores targeting hundreds of millions of consumers. Any change in strategy, including speeding up or slowing down their expansion could be reflected in coffee price predictions.
Global Warming
Some experts are predicting a warming planet will have dire consequences on the ability of farmers to harvest coffee. Dr Aaron Davis, a British botanist, along with a team of scientists, are modelling around 60 per cent of the world’s 124 coffee species to just vanish over time, according to the New York Times.
If accurate, a plunge in global coffee supplies could result in a situation where only the largest coffee companies will remain relevant. Naturally, the coffee price history will show a surge in cost and potentially impact the estimated 100 million farmers and individuals who rely on the coffee industry to support themselves.
Coffee price trend
Investing Haven shares a positive view of the coffee price forecast for the upcoming years.
Earlier in 2019 experts have suggested that coffee prices will rally by the year’s end. According to John Caruso, a senior market strategist at RJO Futures, the price of coffee will rebound to $1.20 per pound “without breaking a sweat,” according to Market Watch.
The analyst’s thesis that “any little catalyst” ranging from weather, currency, or short covering from hedge funds will dictate the coffee price trend to move higher.
Fast forward towards the end of 2019 and the thesis has not played out as expected so far.
According to the coffee price graph, we can observe a giant triangle which is expected to come to a resolution in 2020. Coffee price is coming to its apex. Very soon, we will be able to see whether it will take a breakdown or a breakout with Brazilian real still considered as the major coffee price driver.
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