Spend Matters welcomes this guest post by Abigail Green of Mintec.
Coffee is still as hot as ever in the US, so much so that it is now estimated that 400 million cups of coffee are sold every day. This equates to 3.2 cups per day per adult. The size of the market is massive with an estimated 65% of us choosing to add sugar or milk.
Global coffee output is expected to decline for a second consecutive year, following output reductions in Brazil, the world’s largest producer and exporter. Output fell in 2013/14 when drought caused the crop to suffer and quality fell. Now, concerns center on whether the drought will stretch into the current 2014/15 season, as below average rainfall in December and January has resulted in some reservoirs running dry. Latest forecasts suggest output will be 51.2m 60kg bags in 2014/15, down 6% year-over-year, however, this is up on the previous forecast by 3%.
The current Brazilian drought will also affect sugar. Global sugar output has outweighed demand for the last 3 years, resulting in 3 years of falling prices. However, reduced production in 2014/15, partially driven by the fall in Brazilian output, caused prices to rise in early January. Consumption is also forecast to rise 2% to 171m tonnes, causing some anxiety in the market of a supply deficit. Despite the projected fall in sugar output, sugar stocks are high, and any fall in output can be filled with current stocks, meaning that prices are likely to remain stable in 2015.
For latte lovers, 2015 looks like it could be a cheaper for you! In 2014, US milk prices rose due to tight supplies, however, the high prices encouraged producers to invest in their herds, in order to raise output to maximize revenue. Consequently, US milk output in 2015 is forecast to reach 96.3m tonnes, up 3% y-o-y. This mirrors the global rise in milk output, which is expected to increase 2% y-o-y in 2015 to 582.5m tonnes. Import demand for US dairy products has fallen as a result, causing higher domestic supplies and driving domestic prices down.
Prices for our morning coffee look like they may be rising in 2015 if you prefer an Americano. However, if you are more of a latte or cappuccino drinker, 2015 could see the prices you pay weakening.