Arabica coffee futures were priced at $2.43 per pound in August. By Wednesday, the price had dropped to $1.59, a 35% drop. There are several causes for the consistent reduction in pricing, according to Carlos Mera, director of Rabobank's agro commodities markets division. For one thing, the weather in Brazil is better than it has been in recent years. The fall rains indicate that the country will have a good coffee crop, ensuring supply. "The wet season usually begins in September," Mera explained. "The beginning of this wet season was actually quite good."
Then there's the US dollar's strength. "When the dollar rises, everything measured in dollars falls, including worldwide coffee costs," Mera said. Farmers outside of the United States are encouraged to sell their crops because they will receive a price in US dollars, which translates to more cash at home. "Farmers are more eager to sell any equities they may have," Mera added. The scenario is a complete 180-degree turn from last year. Coffee futures reached their highest level since January 2012 in November 2021. This was due to severe drought and unusual frost conditions in Brazil, which caused market turmoil.
Shortage of shipping containers also puts roasters on edge, prompting them to store up as much as possible. "There are some delays now," Mera remarked, "but nothing in proportion to what it was previously." Coffee has also become more expensive for consumers. According to Bureau of Labor Statistics data, coffee prices in the grocery store increased 14.8% in the year through October, unadjusted for seasonal fluctuations. Starbucks (SBUX) announced in November that it had raised prices by about 6% this year.
However, Mera cautioned that improving circumstances will not always result in a significant drop in coffee prices for consumers. This is because, while coffee prices are declining, other expenses for growers, such as labour and distribution, remain high. "I think if we see falling prices, [they] would be small," he said. Furthermore, large coffee firms, such as Starbucks, negotiate extended contracts, which shield them against short-term volatility.