Coffee price forecast: Is coffee set to rally or cool?
Coffee prices have fallen further since reaching a 10-year high in February, weighed down by concerns about a market surplus caused by Brazil's expected bumper crop and softening demand amid looming recession.
In mid-November, the price of the most popular Arabica coffee beans on the Intercontinental Exchange (ICE) briefly fell to its lowest level in 16 months at $1.50 a pound. A downward revision to Brazil’s crop for next year by the US Department of Agriculture (USDA) aided the price recovery. The price, however, has resumed its downward trend, hovering near the lowest level in 15 months.
As recession is poised to set in many economies which could cool demand, what will be the coffee price forecast for 2023?
The coffee basics
The coffee plant is a tropical perennial crop that belongs to the flowering plant family Rubiaceae. Coffee gets its name from the botanical name Coffea, which refers to shrubs native to tropical Africa and Asia. The plant is now cultivated in more than 50 countries around the world, from Southeast Asia to Latin America and Africa.
There are two main bean varieties on the coffee market: Arabica and Robusta.
Arabica is the most widely traded coffee bean, accounting for 70% of the total market trade. It has more flavour and a sweeter, less acidic taste, making it a favourite among coffee connoisseurs and global coffee shops like Starbucks (SBUX), the Coffee Beans & Tea Leaves, and Costa Coffee.
Robusta beans make up the remaining 30% of the global coffee trade. Robusta tastes stronger and deeper than Arabica due to its high caffeine. The price of Robusta is typically cheaper, making it suitable for mass production of instant coffee, such as for the brand Nescafe, owned by food and beverages giant Nestle (NESN).
Brazil is the world’s largest producer of both Arabica and coffee. Vietnam is the world’s second-largest producer of coffee and the largest producer and exporter of Robusta beans.
Both types of coffee are traded using futures contracts on the ICE at a specified price for delivery at a later date. The beans may also be traded using spot contracts, which are, in contrast to futures contracts, agreements for the immediate delivery of the commodity.
The New York Mercantile Exchange (NYMEX) also trades Arabica coffee.
What is your sentiment on Coffee Arabica?
Coffee prices performance over the year
Arabica coffee futures on ICE plummeted to $0.96/lb in June 2020 as Covid-19 pandemic restrictions caused restaurants, cafes, and public spaces to close, reducing consumption.
According to Trading View’s chart, Robusta coffee futures at ICE also fell to below $1,150 per tonne in mid-June 2020 before gradually climbing to above $1,300 at the end of the year.
Although the price rebounded over the course of 2020, the overall price of Arabica fell by about 1.33% over the year. Meanwhile, Robusta still managed to gain 0.29% in 2020.
In 2021, coffee prices kept rising. The second half of 2021 saw a rally fuelled by Brazil’s declining production and rebounded consumption with the gradual lifting of Covid-19 restrictions.
Coffee cherries in Brazil’s Arabica coffee belt of Minas Gerais, São Paulo and Parana were damaged by severe frost caused by low temperatures in June and July 2021. Arabica beans account for 70% of Brazil’s coffee output.
By September 2021, Arabica’s coffee price crossed the $2/lb mark, from around the $1.20 level in January. It kept climbing to hit $2.43/lb in November, before gradually easing.
Over 2021, Arabica coffee futures gained a whopping 73.6%.
Robusta coffee also surged to touch $2,462 on 20 December 2021, from the $1,300 level in January. The beans surged 71% over 2021.
On 9 February, Arabica futures hit a new 10-year high of $2.59/lb but fell short of the 2011 record high of $3/lb. Arabica's price has retreated since then.
“The futures price is currently at its lowest price range in 15 months, pressured by an improving outlook for next year's crop in Brazil and concern that a global economic downturn could curb demand,” according to a note in November from Seoul-based agricultural trading platform, Tridge.
Latest coffee news
After lower crop in the marketing year (MY) 2021/2022, Brazilian coffee farmers expected to enjoy a bumper harvest. The rise in production came as many countries are facing a cost-of-living crisis due to soaring inflation and high interest rates.
Let’s take a closer look at recent news that shapes coffee prices.
Brazil’s bumper harvest
The Agricultural Trade Office (ATO)/Sao Paulo has reduced its forecast for Brazilian coffee production for marketing year (MY) July 2022/June 2023 by 1.7 million bags (60 kilograms per bag) to 62.6 million bags of green coffee beans, according to USDA report on 22 November. However, it remained 4.5 million bags higher than the previous crop of 58.10 million bags.
“On the supply side, frequent rains and abundant sunshine in Brazil created a very good environment for Brazil's coffee production in the 2023-24 crop,” analysts at Tridge noted.
Coffee consumption seen slowing
Analysts at Tridge said:
“While on the demand side, the tightening of monetary policies across leading markets like the United States and EU has raised concerns about a recession, which can dent demand for the world’s most popular drink.”
Fitch Solutions forecast that coffee consumption growth could slow 1.2% in 2022/2023 from 1.9% in 2021/2022:
“We anticipate that demand growth in mature markets, such as the EU and Japan, will slow or, in the case of the latter, decline while we expect consumption in the US, the second largest coffee drinking market after the EU, to remain robust.”
It expected emerging markets, such as Brazil, the Philippines, Indonesia, Ethiopia and Vietnam, could drive consumption growth in the future.
ICE-certified stocks have risen to 605,192 bags as of 1 December, from 497,809 on 18 November, according to ICE data, reflecting higher output and slowing demand.
Coffee price forecasts: 2023 target and beyond
As of 16 November, Fitch Solutions kept its coffee price forecast for 2023 unchanged at $1.90/lb from October estimates. The 2023 coffee price projection was lower than the estimated 2022 price of $2.15/lb, noting:
“For 2023, we highlight that our average arabica coffee price forecast is now subject to weightier downside risks than previously as our growth outlook for several major coffee consuming markets, such as the EU, has weakened.”
Fitch Solutions’ long-term coffee price predictions expected persistent production surpluses would depress arabica prices. Between 2021/2022 and 2025/2026, the firm expected an average surplus of 10.8 million 60-kgs bags every year. In detail, the surplus was projected to stand at 14.7 million bags in 2023/24, falling to 9.8 million bags in 2024/25, and then rising again to 15.2 million bags in 2025/26, tracking Brazil’s on-off coffee crop cycle.
“During this latter three-year period, our view is that the growth of global coffee production will exceed that of global consumption by 0.8% each year on average, which we see weighing on coffee prices,” according to Fitch Solutions.
With the predicted surplus, the firm’s coffee price forecast for 2025 expected the price to fall to $1.60/lb in 2025, from the estimated price of $1.80 in 2024. The price was predicted to decline to $1.50/lb in 2026.
Coffee was projected to trade at $1.5754/pound by the end of Q4 2022, according to Trading Economics’ coffee price forecast. The data aggregator predicted that coffee prices would fall to $1.441/lb in 12 months.
However, not all coffee price forecasts were gloomy. The coffee price predictions from Wallet Investor were bullish. According to the algorithm-based price forecast service, coffee is a great long-term investment. The service’s coffee prices forecast for 2023 saw the price reach $2.1245 by December 2023, rising to $2.956 in two years by December 2025.
Wallet Investor expected coffee price to trade at $3.72 by November 2027.
Final thoughts about the coffee price forecast
Coffee prices were projected to fall in the long term as surplus in the market continued to put downward pressure on prices. However, algorithm-based predictor Wallet Investor forecast coffee prices to rise, based on its algorithm projection.
Keep in mind that analysts' and price forecasting services' predictions for coffee prices may be wrong. Forecasts should not be used instead of conducting your research. Before investing, always perform your due diligence. Furthermore, never invest or trade with money that you cannot afford to lose.
FAQs
Is coffee a good investment?
Coffee, like any other financial asset, is subject to market volatility. Weather and consumption patterns are just two unpredictable factors that can influence the rise and fall of coffee prices.
Whether coffee is a good investment depends on your investment goal, investment portfolio, and the risks that you are willing to take. Remember to always conduct your research before investing by reviewing news, regular data releases from statistics offices, and analysts’ reports on coffee markets. And never trade money that you cannot afford to lose.
How low can coffee prices go?
No one can say for sure. According to Fitch Solutions on 16 November, Arabica coffee price could fall to as low as $1.50/lb by 2026.
However, analysts’ predictions can be wrong and have been inaccurate in the past. Always do your own research before making any investment decision. And never invest with more money than you can afford to lose.
Should I invest in coffee?
Coffee prices are influenced by market volatility. If you want to invest in coffee, you should consider your investment goal, your knowledge of the coffee market, and the risks you are willing to take.
Before investing in coffee, always conduct your research on the latest coffee market news and analyst projections. You should never invest money that you cannot afford to lose.
Markets in this article
Related topics
