Coffee prices stumbled and fell drastically, with U.S. Coffee C futures dropping from a high of $125.50 (day’s high on 19th October 2018) to the level of $94.50 (day’s low on 12th March), which almost touched the previous 13 year low of $93.50 made in October 2016. The drastic fall in coffee prices is attributable to the emergence of major coffee producers such as Brazil and Vietnam in terms of production of both Arabica and Robusta Coffee.
The major contributor to the fall in the coffee prices was increased level production of Brazil in 2018 amid favourable weather conditions and a high number of trees reaching the biennial production cycle.
Over the long term also, coffee prices slumped amid years of high local prices in Brazil, which provided an impetus to the local farmers to invest more in the commodity production and yield more as weather conditions favour the output.
As per the U.S. Department of agriculture, Brazil is likely to hit another high production in the year 2019, after it produced 60 million of 60-kg bags in 2018, despite the fact that the trees in Parana and the southeast of Minas Gerais being in an “off-cycle” of the biennial production cycle.
The development in the production from Brazil and other coffee producers such as Vietnam, Central America contributed towards the fall on coffee prices. However, the stumbled prices halted the steep fall on account of changing the trend of coffee demand and the role of emerging coffee vendors such as Starbucks.
The shifting of a trend in China along with off-cycle production concerns as trees in major producing area enter into the period of rest is expected to support the coffee prices. The production loss from Brazil is expected to support the coffee prices over the short term.
As per the study report from USDA, the young Chinese population is drifting from the traditional habit of tea towards coffee. The shift in the habit of Chinese youngster looks sufficient to support the coffee prices over a short term before another heavy production from Brazil arrives in the global market.
The major Coffee vendors, such as Starbucks are also playing a part in shifting habits of Chinese youngster from tea to coffee, in terms of more investment in the country, more outlets and promotion of coffee culture, where along with coffee selling, it's harvesting and coffee methodology is also explained to the consumers.
Apart from shifting tradition and measures adopted by vendors to save their business, the U.S. consumption is also supporting coffee prices. An American consumer drinks an average of almost two cups of coffee a day. However, with the high demand, high production offsets any benefit to coffee prices from the consumption.
To further gauge over the short-term and long-term trend in coffee prices, the agriculture investors are keeping their heads up towards the sky to spot any change in prevailing weather conditions over high production areas to reckon the future production level of the commodity.
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