offee price forecast 2022: World coffee prices are increasing rapidly. In just the past week, the price has increased by nearly 10%. Will this trend continue from now until the end of 2021 and what will the prices be like in 2022? Analysts generally say those coffee investors should be ‘sober’.
The price of coffee this year was greatly affected by the decline in demand from the food industry during the time of the worldwide social blockade against Covid-19. This market has changed as consumers switch to drinking coffee at home instead of going to restaurants, and that has affected demand for some types of brewed coffee.
The price of coffee so far this year has fluctuated quite strongly – in the range of about 40%. Up to this point, the Covid-19 epidemic is still ongoing, and how should the manufacturing industry and investors forecast the upcoming market trend? Which segment in this industry will attract stronger demand from consumers?
Why invest in coffee?
While coffee is not as popular as other commodities like crude oil and metals, it is one of the most traded soft commodities in the world. Coffee is in many investment portfolios, from commodities bought to fight inflation to commodities favored when the USD falls. Coffee exports are a $20 billion industry, providing the world with 2 billion cups of coffee a day.
Coffee prices are often affected by supply concerns, which can lead to sharp fluctuations and create profit opportunities for investors. Coffee is grown in more than 50 countries, but large-scale production is concentrated in only a few countries, where weather and geopolitical fluctuations affect supply. The coffee market may also be impacted by global economic growth, with consumption increasing in several emerging economies in Asia, Africa and Latin America as those economies develop, and in developed countries as disposable income increases.
However, investors need to be cautious because when the supply is abundant, the economy is depressed and the dollar is stronger, the price of coffee will decrease.
The reference coffee futures contract for global Arabica is the C standard Arabica, listed on the New York Mercantile Exchange (NYMEX), owned by the Chicago Mercantile Exchange (CME) and the Department of Commerce. Intercontinental Exchange (ICE). Coffee beans account for 75% of global coffee production, mainly grown in Brazil and Colombia, of which Brazil alone accounts for 40% of the total supply. The remaining 25% of coffee is Robusta, produced mainly in Vietnam and Indonesia. Robusta contracts traded on ICE exchange are used as a reference for the global Robusta market.
Arabica is a premium coffee, with a milder, sweeter aroma; while Robusta has a bitter taste, the caffeine content is higher. Robusta prices tend to be more volatile, as Robusta is used mainly by large multinational corporations, and mainly for blending.
Changes in production lead to fluctuations in coffee prices
Coffee prices trended downward from late 2016 to 2019 due to increased production exceeding consumption in Brazil and a sharp drop in the Brazilian real against the USD. The time the price hit the ‘bottom’ was in May 2019, when the arabica price fell to 0.87 US cents/lb, from a historic 2011 ‘high’ of 3.06 USD/lb.
After Brazil reached a record high output in the 2018/19 crop year, output fell and supply tightened. The combination of falling Brazilian production and a stronger Brazilian real changed the trend in this market, sending prices up in the second half of 2019. Consumer tastes also changed cold coffee and this is becoming more and more popular, especially in the US; Coffee consumption in China is also growing rapidly, where Starbucks opened more than 600 stores in 2019.
Coffee prices began to fall in February 2020, when Covid-19 forced countries to close their markets, starting in China and then spreading around the world, reducing the demand for coffee in shops. Consumers switched to drinking coffee at home, causing demand for varieties to shift from Arabica to Robusta – the type of coffee used as a raw material for instant coffee production.
Arabica coffee it is the world benchmark for coffee futures contracts that trade on the Inter Continental Exchange (ICE). Arabica accounts for 75 percent of the world’s production and is mostly cultivated in Brazil (40% of the world’s total supply) and Colombia. Robusta account for the remaining 25% and is mostly produced in Vietnam (15% of global supply) and Indonesia. Other major exporters include: Peru, India, Uganda, Ethiopia, Mexico and Cote Ivoire. Robusta is the coffee bean that is popular in Europe and espresso coffees while Arabica beans are popular in the United States.
Arabica’s price entered 2020 at 1.26 USD/lb, dropped to 0.98 USD in February 2020, then increased to 1.3 USD/lb in March 2020, and then fluctuated sharply until then again turned down to $ 0.96 in early June 2020.
Arabica prices have increased throughout the summer as countries gradually relax anti-Covid-19 restrictions. But the second wave of disease outbreaks pulled prices down in the winter. Arabica prices, after falling to a 3-month low on November 3, reversed to rise again, rising more than 10% to $ 1.12 / lb. Brazil’s exports in October 2020 increased by 11.5% over the same period last year, accompanied by concerns about Hurricane Eta making landfall in Nicaragua and Honduras in the first week of November, seriously affecting crops. and even transportation.
Robusta coffee prices also increased as floods in Vietnam interrupted the harvest. In the key areas of the Central Highlands, the price of green coffee beans is currently trading from 33,700 to 34,200 VND/kg, the highest this year. At the port of Ho Chi Minh City, export Robusta coffee grade 2, 5% black broken rate is up to 1,541 USD/ton (FOB).
What is the coffee price outlook from now to the end of 2021 and 2022?
Coffee investors are keen to know if the recent price rally will sustain in the coming months.
Commodity prices of all kinds increased suddenly on November 9, 2021, when there was information about a very potential vaccine against Covid-19 with successful test results of up to 90%. An effective vaccine will help the world economy recover, thereby pulling coffee demand up.
However, analysts predict that the coffee market will continue to be under pressure as many politicians introduce blockade measures again to prevent the second wave of the Covid-19 pandemic.
“Demand from coffee shops and other foodservice operations remains very low as consumers are still drinking coffee at home,” said Jack Scoville, an analyst at research firm Price Futures Group. Poll results show that consumers at home are consuming blends with more Robusta and less Arabica.” Such a trend suggests that Robusta prices in the coming months will be better than Arabica.
Analysts of Dutch bank ABN Amro also provided their own coffee price forecast: “Dry weather in Brazil is a concern for the coffee market. It is very likely that Brazil’s production for the year will be. Coffee consumption in coffee shops will decline due to the Covid-19 pandemic. This pressure will continue with the new global quarantine measures. Prices will remain relatively weak.”
Amro forecasts Arabica prices to average $1.09/lb in December, fall to $1.07 in the first quarter of 2021, and average $1.09 in 2021.
Fitch Solutions forecasts Arabica coffee prices to average $1.05/lb in 2021 and 2022 but will fall to an average of $1.10/lb in 2020. Citibank downgrades its Arabica price forecast for the next three months. $1.07/lb and remains at “stable or declining due to oversupply in 2020/21 to 4.3 million bags”.