Inclement Weather Patterns Drive Up Coffee Bean Prices

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Spend Matters welcomes this guest post from Avneet Deol of Mintec.

The average American consumes around two to three cups of coffee a day. With the average price of coffee around $3.28 for a drink, that puts annual costs in the region of $2,394.40 to $3,591.60. The cost of coffee beans are now at the highest level seen in two years, which means it may be time to budget an extra couple hundred dollars a year for your caffeine habit.

There are two primary types of coffee bean: Arabica and Robusta. Arabica, the higher quality bean, is traded on ICE in New York, while Robusta, the more bitter tasting bean (used in instant coffee, with the highest quality beans used for espresso) is traded on ICE Europe in London.

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Arabica beans on the New York market have risen 36% since the start of this year, despite expectations that global production for 2016/17 will increase 9% year on year to 94.1 million 60-kilogram (132-pound) bags on the back of a record crop in Brazil. This is mainly due to the effect of the strengthening Brazilian Real (BRL), up 22% against the dollar since the start of 2016. This boosts the value of assets such as coffee in dollar terms, for which Brazil is a major market. The risk of damage to the 2016/17 crop from potential frosts over the Brazilian winter, between June and September, also supported prices. More recently, heavy rainfall across Arabica growing areas, coinciding with the flowering stage of development for the 2017/18 crop, has raised concerns over lower production next season.

Meanwhile, Robusta prices on the London market have risen 37% since the start of 2016. Global Robusta production for 2016/17 is forecast down 8% year on year, at 61.6 million 60-kilogram bags, due to declines in Vietnam and Indonesia. Production in these markets is expected to fall due to damage caused to the crops by El Niño-related dry spells in 2015 and the first half of 2016.

Overall, coffee bean production for 2016/17 is forecast up 2% year on year at 155.7 million 60-kilogram bags. Despite this, ending stocks are forecast to fall 11% year on year to 31.5 million bags. This is partly due to low beginning stocks, as a result of record exports last season and record consumption. Global consumption is expected to increase 1% year-on-year to 150.8 million 60-kilogram bags, supported by the ongoing expansion in coffee shop chains and rising sales of single-serve coffee capsule machines in developed markets.

To summarize, we now know why the prices of coffee beans have risen this year, but will the increase in prices be passed on to consumers, changing their consumption habits in turn? Well, maybe not. Coffee roasters and blenders are able to change their recipes to increase the proportion of cheaper Robusta that is used. So sit back, relax and enjoy your cup of slightly more bitter coffee.

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