Spend Matters welcomes another guest post from Corrina Savage and Jaroslav Zicha of Mintec.
According to recent studies, roughly 83% of American adults drink coffee. With some 100 million people drinking around 3-4 cups a day, we can say that coffee is a firm part of the infrastructure of the US. There is certainly some good news for the buyers of coffee bean, who have been on a downward slide for a couple of years.
Coffee as we know it can be made from a single type of coffee bean, or a blend of Robusta and Arabica beans. Arabica coffee is generally preferred for higher quality coffee, due to its sweeter and rounder flavor. In 2010/11, the high prices of Arabica encouraged many coffee roasters to substitute it with the lower-quality and cheaper Robusta in their blends. Now, Arabica prices have fallen 22% since the start of 2013 and are at the lowest levels seen since 2009.
We can thank high production for grinding down the prices. World production is actually set to decline in 2013/14, to 146.3 million 60-kg bags (approximately 132 pounds), but that is higher than the expected consumption of 141.6 million 60-kg bags.
Brazil is the largest producer of Arabica, with 38 million 60-kg bags produced per annum, making up 45% of global production. Last year, Brazil saw a record Arabica crop due to ideal weather conditions for growing the beans. Brazil’s production for 2013/14 is set to decline 3% year-on-year. However, this was expected. In Brazil, a lower harvest will always follow a good harvest as the trees recover. Still, the production for 2013/14 remains one of the highest seen in recent years. As supply is higher than demand, global ending stocks are set to increase to a five-year high.
As Arabica prices have fallen, the price premium between Robusta and Arabica has reduced to just below 40 cents a pound, down from 150 cents a pound in 2011. There has even been some Brazilian Arabica trading at a discount to Robusta in the past month. Now, with the premium between the two varieties eroded, some of the roasters have shifted their attention back to Arabica. It is estimated that as much as 4 million bags of Arabica coffee could replace Robusta in 2013/14.
With the prices this low, it is great to have something that is keeping the country going.