When it became clear that we were in store for not only an El Niño year but a super El Niño we expected to see significantly higher coffee prices due to reduced coffee production. El Niño is certainly developing as expected or even worse but the price of coffee has fallen over the last few months instead of rising. How is that possible?
How Much Will the Super El Niño Reduce Coffee Production?
Drought will be the cause of reduced coffee output in many regions of the world. While Brazil was expected to have a banner year prior to the current El Niño they are now expecting as much as a twenty percent reduction from previous crop estimates. We just wrote about how the Central American Dry Corridor will experience significant reductions of all harvests, including coffee. Estimates of reduced output across all of Latin America run from thirty percent to as much as fifty percent. While global coffee production will likely fall as a result of this El Niño event, supplies on hand and reduced demand will be tempering factors.
Coffee Prices Follow the Law of Supply and Demand
While short term supply will be reduced due to climate issues, both of the world’s biggest producers, Brazil and Vietnam, have significant coffee reserves from recent harvests which are helping the market cope with the supply issue. It remains to be seen how well these reserves will hold up if the super El Niño lasts longer than expected or ends up being more severe than currently anticipated.
How Is Coffee Demand Holding Up?
The world coffee market demand from 2026 to 2031 is expected to grow at greater than 5% a year over the coming years with the Asia Pacific seeing the greatest growth although North America will retain the biggest market share. Premium ground coffee will be the leading coffee product followed by instant coffee. As a market niche, single origin coffee will gain market share compared to mixed origin coffees. Increasingly, direct supply from point of origin is becoming more popular with coffee direct from Colombia always an excellent choice.
Coffee Shop Image Courtesy of Wikipedia
Young Asians Are Drinking More Coffee and Less Tea
Stressed young Chinese workers are more and more switching to coffee instead of tea according to NBC News. This trend goes along with more and more coffee shops in China. In just last few years the number of coffee shops in China increased by nearly sixty percent so that today China’s fifty thousand shops exceeds America’s forty thousand. In addition, more and more Chinese coffee shops are local brands like Manner, Cotti and Luckin instead of foreign owned chains like Tim Horton’s, Starbucks, or Costa Coffee. In the largest cities private coffee shops are also thriving helping drive demand for coffee in Asia. This trend should be driving coffee prices higher while the world faces lower coffee output due to the current El Niño situation. But it would seem that ample reserves are helping prop up the price of Java despite other supply and demand issues!