Spend Matters welcomes another guest post from Abigail Green of Mintec.
When it comes to coffee, it seems that we just can’t get enough. Walking through your average city downtown, you will probably pass at least one coffee shop that is packed with commuters getting their morning brew.
It should come as no surprise then that coffee growers all over the world are expanding their production in order to supply this growing market. Coffee production this season is estimated to rise by 6% year-on-year to 144.6 million 130-lb bags, of which 88.7 million bags will be the finer-quality Arabica bean and 55.9 million will be of the easier-to-grow Robusta bean. This increase in production has helped lower prices for both varieties of coffee.
Arabica coffee prices are now at the lowest level since June 2010 as a result of generally improved production and in particular due to an excellent crop from Brazil, the world’s largest coffee producer. Brazil is in the peak year of its biennial cycle, and ideal weather conditions have resulted in a record crop.
In contrast, Robusta prices have remained much more stable. The general quality of the Robusta coffee bean has also begun to improve thanks to more advanced growing practices in Vietnam, the world’s largest producer of Robusta.
The price differential between Arabica and Robusta has narrowed considerably over the past few years and has now returned to a more normal level historically. The difference between the two prices fell to 38 cents/lb in March 2013, the lowest in three years. This compares to the maximum difference of 170 cents/lb seen in April 2011.
Looking ahead to next season, Robusta coffee production is expected to remain good, with no reports of diseases affecting the crop. However, Arabica production continues to be threatened by the spread of coffee leaf rust disease throughout Central America. The spread of the disease is currently believed to be one of the worst ever recorded, and the disease is expected to impact next season’s 2013/14 crop. Just over half of the total coffee producing areas in Guatemala, El Salvador, Honduras and Costa Rica could be affected with some impact also being seen in Panama, Jamaica and the Dominican Republic.
Some early forecasts have been released regarding the potential impact on the 2013/14 crop, with Costa Rica expected to lose between 190,000 to 230,000 bags (around 15% of their output), while El Salvador has indicated that it is expecting its smallest crop in 33 years.
At present, excellent production and good supply have allowed coffee prices to fall back from the exceptionally high levels of 2011. Although prices may remain low throughout 2013, it seems likely that Arabica prices may begin to rise by the end of the year when the real impact of the coffee leaf rust disease in Central America is known and Brazil moves into the low year of its biennial cycle.