Coffee was one of the hottest commodities early this year, but prices have dropped more than 20% in the last month. Wet weather in producing countries such as Brazil and Indonesia is increasing the likelihood of a healthy harvest and increased coffee supply, causing prices to fall. At the same time, this year's strong dollar has put downward pressure on the pricing of several commodities. Arabica coffee futures have fallen 22% in a month. Coffee futures fell for 13 consecutive trading sessions in October, the longest losing streak in nine years. Cheaper robusta beans fell 15% during the same period.
The drop represents a significant turnaround. Coffee futures hit an 11-year high of $2.58 a pound in February after drought and frost harmed supplies in Brazil. Prices fell, then rose again in late August, and are now down about 30% since then. The most active Arabica contract fell 0.5% to $1.70 per pound on Friday. While it is still early in the coffee-growing season, the weather in Brazil has been much more cooperative to farmers. According to StoneX Group data, precipitation in Brazilian coffee-growing areas has exceeded seasonal averages over the last 45 days.
"We had a hard year last year; this year is typical," said Albert Chu, senior research analyst with Newton Investment Management, a research company affiliated with BNY Mellon Corp. The wet weather is predicted to persist, as the US National Weather Service forecasts a La Nia climatic pattern through 2023. According to the most recent forecast, La Nia has a 75% chance of persisting through the winter. Meanwhile, the dollar is still up for the year, despite a sharp drop on Thursday following new data showing slowing inflation. Commodities are typically priced in dollars, so a strong dollar makes them more expensive for buyers worldwide.
Coffee demand and prices rose during the Covid-19 pandemic when people stayed at home, so some of the recent price drop reflects a return to normal. However, coffee drinkers should not expect a sudden decrease in the cost of their morning joe. Futures prices can take a long time to trickle down into retail prices, if at all. Furthermore, many caffeine addicts appear unwilling to give up their coffee habit regardless of the cost.
Starbucks Corp. reported revenue for the most recent quarter that exceeded analysts polled by FactSet, with same-store sales up 7% year on year. Nestlé SA reported last month that its coffee division grew organically by 8% in the third quarter, owing largely to sales under its Nescafe brand. "When we look at the development of our sales and our growth by category, we can clearly see that everything is normalising post-Covid," Chief Financial Officer François-Xavier Roger said on a conference call with analysts.
