According to the Wall Street Journal, the coffee market has diverged since the embargo measures during the epidemic forced a shift in global consumer behavior this year.
On the ICE Intercontinental Exchange in the US, Arabica coffee futures prices have fallen by almost 9% in 2020. Arabica coffee, a softer, sweeter-tasting variety produced mainly in Latin America, is popular in cafes and restaurants.
Robusta futures traded in London are down less than 3% in price. Robusta futures are mainly used for freeze-dried coffee or for espresso capsules. This stronger-tasting coffee is usually grown in Vietnam.
Analysts say the outbreak has changed where and how most people in the West consume coffee. Many restaurants and cafes have closed as a result of the ban, which has made measuring demand more complicated. At the same time, the coffee market is facing an oversupply, partly due to a bumper crop in Brazil, the world’s largest coffee producer. The combination of these factors could undermine the recovery in coffee prices.
MichaelaHelbing-Kuhl, the agricultural commodities analyst at Commerzbank, said, “High supply and weak demand are making the price recovery, which has fallen in recent months, more difficult.”
According to forecasts from the US Department of Agriculture, coffee consumption is likely to fall for the first time since 2011 in the marketing year ending in September. The agency said that coffee consumption could rise slightly by 1.5 percent to 166.3 million bags next year.
Analysts said demand for coffee in emerging markets such as Brazil had fallen more than in developed countries such as the US. It is difficult to say whether the growth in consumption by people who work from home and drink coffee at home will be enough to offset the impact of falling consumption in cafes and restaurants.
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Steve Pollard, the coffee analyst at brokerage firm MarexSpectron, said measuring current demand was difficult to even in normal times.
Pollard said supermarket sales data could be used to measure household consumption. At the same time, revenues from large coffee chains could provide an indicator of outdoor demand, but neither reflected the overall picture. Many of the largest coffee-consuming countries, such as Brazil, collect only some data on coffee drinking, while others have no data at all. Broad indicators, including imports and exports, can provide an indication of changes in demand over time.
Global coffee supply is expected to reach its highest level on record in 2020, although there is still uncertainty caused by the epidemic.
JoseSette, Executive Director of the International Coffee Organisation, said: “Our sense from talking to market participants is that the reduction in outdoor coffee consumption is greater than the increase in household coffee consumption. Therefore, it is unlikely that the increase in household consumption will fully compensate for this loss, but exactly how much remains open to speculation.”
The supply picture is clearer: Next year’s coffee bean crop is expected to be the highest on record, with the USDA forecasting production of 176.1 million bags.
Traders’ fears that the outbreak could lead to supply disruptions, particularly if there is a lack of labour on farms or if border controls and port blockades restrict shipments, have largely not materialized.
Highly mechanized Brazilian farms, in particular, have managed to avoid any disruptions, putting the country on track to achieve a record harvest for the marketing season that begins in October. Brazil’s production is likely to be close to 68 million bags, the largest harvest ever recorded in the country.
Priscilla Daniel, the senior coffee trader at London-based DRWakefield, said the supply of Arabica coffee beans could still be at risk if smaller farms in Colombia and Costa Rica struggle to find the skilled migrant labour they rely on for their livelihoods. Arabica coffee beans account for about 60 percent of the global coffee trade. The coffee you drink at home is usually a mixture of Robusta and Arabica coffee.
Without experienced pickers and with fewer pickers per square meter, the optimum time for picking is missed, and the quality of coffee may not be as good,” says Daniel. Poor quality coffee beans that don’t meet export standards could mean less production on the international market.”
The plunge in Arabica coffee futures this year has made it one of the worst-performing major commodities, with US oil prices also down 35 percent. In contrast, gold prices have risen by more than 30 percent this year, and copper prices have largely held their value, rising by 3.5 percent.
Analysts say coffee prices could pick up if government stimulus measures boost consumer spending and encourage people to visit cafes and restaurants. But the change in coffee drinking habits could be permanent.
ICO’s Sette says: “In the long term, I’m very confident that consumers will demand coffee, but what will the longer-term changes be if we move into a world where more people work from home?”
Finally, remember to use a quick and easy caffeine calculator to calculate your daily caffeine intake so that you can avoid excessive caffeine intake.
