Coffee Prices 2012

by Daniel Harrington on April 16, 2011

The steep rise in coffee prices in the latter half of 2010 and into 2011 will likely be sustained into 2012 with a distinct possibility of continued price increases due to various causes in the worldwide coffee market.

Brazil, the world’s largest coffee producer, is expected to a fairly good “off year” in its biennial cycle of alternating lower and higher production, though this still signals an overall decline in production that will help to maintain upward pressure on global coffee prices.

Also see: The Top Ten Coffees in the World

Estimates for Coffee Crops of World Powerhouse Coffee Producer Brazil

While the total coffee production of Brazil in 2010 was 48.1 million bushels the estimate for 2011 is around 43 million bushels which would make it Brazil’s biggest coffee crop ever during an off year even though it would be a decline of about 13% from 2010.

Another well-studied estimate has Brazil’s coffee harvest at just 36 million 60-kg bags in 2011 compared to 47.2 million in 2010 and 39.5 million in 2009.

Coffee Prices 2012 continued: Coffee Market Report

Coffee Production in Latin America in 2011 and 2012

Latin America’s other coffee exporting countries have increased their coffee production overall despite many instances of inclement weather harming crops along with outbreaks of coffee plant diseases and pests.

The fourth quarter of 2010 saw more than twenty percent increase in coffee production from the fourth quarter of 2009 for Latin American coffee exporters other than Brazil.

Honduras saw an increase in exports of 148% in the last quarter of 2010 from the previous year, which was the strongest increase of many countries that saw growth in their coffee crops including the Dominican Republic (50% increase) Costa Rica, Nicaragua, Colombia, Guatemala, Peru and El Salvador.

The only country from the region that saw a reduction in coffee production was Mexico.

The 2011 coffee crop from these countries is expected to be strong though it remains to be seen whether even bumper crops can make up for a decline in Brazil coffee production which dwarfs these other countries in total volume of production.

A more likely scenario is that world coffee production sees a decline well into 2012 which will maintain the high levels being attained by coffee prices and possibly continue to upward price trend.

World Coffee Stockpiles Depleted in 2010/2011 Eliminating Price Cushion in Coffee Markets for 2011/2012

Meanwhile world coffee stockpiles are at an all time low making the coffee markets extremely vulnerable to any new supply disruptions. 2010 coffee stockpiles are estimated at about 12 million 60-kg bags which is the lowest level since records began being kept in the 1960s.

Adding to the upward pressure on coffee prices is Brazil’s rapidly increasing coffee consumption which is expected to grow five percent for the year, which is much faster than the worldwide average of two percent.

Coffee Market Watch: Coffee Prices 2012 continued:

Emerging Markets Driving Demand for Arabica Coffee in 2011/2012

Brazil’s increasing taste for its own fine Arabica coffees has analysts predicting that the country will exceed U.S. coffee consumption in 2012 and also that Brazil will be keeping more than half of its own coffee crop by 2015.

The quickly increasing demand for coffee in emerging markets like Brazil, China, India and Latin America – where the are rising middle classes with many up-and-coming young professionals with more disposable income – will continue to place strong upward pressure on coffee prices in 2012.

Colombia Suffering String of Disappointing Coffee Harvests

Colombia is another major world powerhouse coffee grower that is expected to see declining production in 2011 or at best coffee production at about the same level of 2010 which was a year of disappointing harvests.

Total production for 2011 is estimated at about 9 million bushels which would make it the fourth straight year of lower production compared to the 12.5 million bushels of coffee Colombia produced in 2007.

Colombia has seen a rash of bad weather largely attributed to a persistent La Nina weather pattern which in turn has been blamed on global climate change which has harmed crops throughout the region.

The inclement weather including high humidity has led to outbreaks of coffee plant diseases and pests which are hard to eradicate and have significant effects on production, sometimes threatening whole crops of particular plantations.

Coffee Prices Expected To Stay At High Levels, Possibly Continue Upward Trend in 2011 and 2012

The serious concerns about overall coffee production in Colombia and Brazil along with low global coffee reserves have industry analysts predicting the strong upward pressure on coffee prices to continue well into 2012 and likely beyond.

It should be noted that coffee plants take three to five years to mature and begin producing significant crops so renewed investment in planting programs will take some time to come to fruition.

Furthermore many countries, including Brazil, are not rushing to make major new investments in planting despite the current high coffee prices because these countries have seen numerous boom and bust cycles in the past that have left them high and dry after ramping up production only to find that prices crash by the time the plants come to harvest.

Update on Coffee Prices in 2012

World Coffee Demand Is Outpacing Supply in 2011/2012

While worldwide coffee production in 2010 was about 134. 6 million bushels, the 2011 total is forecasted at about 134 million bushels.

Meanwhile worldwide coffee consumption is growing, particularly for the higher grade Arabica coffee beans which are used exclusively by high end coffee shops and retailers like Starbucks, Peet’s, Caribou Coffee and Green Mountain Coffee Roasters, and used to make the  specialty coffee drinks including Lattes and Cappuccinos increasingly desired by gourmet coffee lovers worldwide.

Vietnam is the world’s number two coffee producer sandwiched between the leader Brazil and third place Colombia. However Vietnam grows primarily the lower grade Robusta coffee rather than the more costly, and more difficult to grow, Arabica coffee.

Vietnam Robusta Production Decline in 2011 Expected To Exacerbate Arabica Coffee Price Pressures Into 2012

Though the primary shortage in coffee markets is Arabica, Vietnam’s recent problems with production due to inclement weather exacerbated the problems and helped drive up coffee prices overall in 2010 and 2011. The country’s harvests may yield more in 2011 even though they are seeing excessive rains that may cause delays.

The 2011/2012 Vietnam coffee harvest is expected to be adversely affected by overly dry weather in the Central Highlands causing a decreased in production. Also causing problems are water shortages that have led to uneven flowering cycles on the coffee plants lowering the overall yield.

A marked decrease in Vietnam coffee production, which now is being strongly considered as a distinct possibility, will surely have an effect on world coffee markets including more pressure on prices for the prized Arabica coffee beans, and more specifically, the green coffee beans sold on world coffee markets.

Still this remains quite uncertain due to the variables involved including incentives to skew estimates with the goal of affecting current coffee prices. However impartial estimates for Vietnam’s 2010/2011 crop were already significantly lower than the previous year.

Futures Trading Driving Up Prices on Coffee and Other Commodities

Speculative trading has been a significant contributor to rising coffee prices in 2010 and 2011 including huge infusions of money from hedge funds exacerbating the fundamental structural market changes due to a rising demand for coffee at a time of reduced supply.

Many attribute this increase in investor money into coffee futures markets to governmental easy money, easy credit policies which have had the effect of driving up commodity prices. This speculative investor money flows into Robusta as well as Arabica markets and this is likely to continue into 2012 if the Federal Reserve continues to maintain low interest rates, while increasing U.S. debt has contributed to a weakening dollar creating effectively creating higher commodity prices for Americans.

Thank You for Visiting Espresso Coffee Guide and Reading Coffee Prices 2012! Savor Your Coffee and Espresso!

{ 3 comments… read them below or add one }

P.K.HEM MADAPPA September 16, 2011 at 1:00 pm

The above reports are very informative especially for coffee growers in India,like me.I grow certifed coffee [RAINFOREST ALLIANCE and WOODS certified] in Kodagu,Karnataka,India.Thanks.

mulat taye April 19, 2012 at 4:20 pm

the above reports are very nice and give us a hope and inspiration especially we which our life is highly dependant on Arabica coffee growing farmers in Ethiopia. Thnks.

Dr Denny Devassykutty MD June 8, 2012 at 6:06 am

The above report was informative , and we are increasing our speculative exposure in coffee futures.

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