TopBrewer Coffee | Market update 2024

1 July, 2024

 

Dear Customer,

We are seeing rapid market condition changes across multiple product groups. These changes have similar causes: bad harvests and increasing demand, which are never a desired combination. The increases in markets go across Arabica, Robusta, Cocoa and Oranges.

 

Arabica

Arabica was long traded at prices that undervalued farmers’ work. To some extent, the prices were low enough that families in coffee-producing countries abandoned coffee for something more lucrative1. This was at a time when prices were around 120-140 (2).

The situation since Covid has been prices trading higher than that, around 185-195 mostly.
Recently, prices have increased for contracts from September onwards, trading at 245-250 (3), an increase of around 30%.

This will impact coffee prices starting from September 01st. We will continue to evaluate and report back on further adjustments.

The major takeaway is that harvests in large producing countries like Brazil and Indonesia have been hit with weaker yields. (4) The main reason is increasing temperatures and droughts. The growing conditions are changing, and farmers are still looking for the tools, mainly water, to adjust.

The market price has increased by around 30%.

We contend that we might have found a new baseline for the market and that prices won’t go significantly down from here. This is not to say they couldn’t drop back down by 20-30 points, but they will likely settle above 200.

1 https://www.merchantsofgreencoffee.com/2021/04/09/why-are-many-coffee-farmers-abandoning-their-crops/
2 Price = 100 USD for 100 lbs / 45,36 at quality 3 in a simple scale of 1-5
3 https://www.investing.com/commodities/us-coffee-c
4 https://www.dw.com/en/coffee-prices-soar-on-poor-harvests-and-new-consumers/a-69141931

We are not alone in this evaluation, either. (5) We will know more in the coming months, but we further foresee that prices will continue increasing slowly as growing conditions worsen.

There are a few factors beyond this that affect the coffee Amokka buys. The quality we buy is with a so- called premium added to any market price. So, as a percentage, we are not affected as much as the mid- market coffees are. However, there is also an increasing demand for better cultivated and processed coffees yearly as demand for better quality increases across most markets.
We all go to work daily to deliver premium cup quality. The coffee we roast is sourced directly, which means a lot of positives when it comes to consistency in quality and delivery. As we grow, we continue to expand our network of suppliers and ensure we are somewhat risk-resilient and not too reliant on one source if things go wrong in that region or country. Managing an increasing portfolio with the volumes we are now doing and the expectancy of taste in both singles and blends can be challenging. Still, with a broad portfolio, we can make many changes to some of our blends during a year, ensuring they taste as we expect while staying cost-stable. We also continue to source directly and pay a premium to sustain farmers. They reinvest in their farms, and the quality of their farms has improved over the years, which hopefully shows in the coffee we roast.

Robusta

Coffea Canephora (Robusta) has ever seen such radical increases in the past nine months.
Failed harvests by tone-setting producing country Vietnam started an avalanche of increases. (6) Supply tanked, and even getting hold of a sub-quality Robusta was (and is) difficult. Buying Robusta at the quality we usually do was so expensive that some spot prices came close to that of Arabica. It was unheard of just 15 months ago.

Part of this is also speculative, and traders, having seen Cocoa prices soar, also put their money into Robusta. The liquidity of Robusta trading increased to the highest levels, and so did the price pressure.

5 https://www.theguardian.com/business/article/2024/jul/09/coffee-prices-will-rise-even-higher-says-giuseppe-lavazza
6 https://www.newsweek.com/coffee-prices-spike-amid-global-supply-concerns-1889973

The price levels of 1.200-2.000 points are long gone, and now it’s trading 3,7x that level at almost 4.600 (7).

Cocoa

Cocoa has been a stable crop for decades, with prices around 2.500 points. However, in the last ten months, prices have soared above 10.000, showing immense volatility and inviting traders to feast on the future like vultures (8).

The price has since fallen slightly again to levels around 8,000, and indications are that the harvest is looking a bit better than the previous one. However, the product’s scarcity is currently the most concerning issue (9). Following what has been hoarding from significant players, it’s hard to get enough chocolate for world demand.

We’ve worked with our supplier and made a contract, so we have delivery security. Prices have already bumped upwards, and they will again.
Prices will be adjusted +25% effective from September 1st (estimated).

7 https://www.investing.com/commodities/london-coffee
8 https://www.investing.com/commodities/us-cocoa
9 https://www.theguardian.com/environment/2024/mar/29/easter-eggs-chocolate-cacao-harvests-cocoa-prices-aoe

Summary

Coffee prices are under pressure. Harvests are scarce and threatened by drought and worsening growing conditions. Amidst calls for more sustainable and better-quality coffees, prices are being pushed to new baseline levels. We will increase by 8% across our range and monitor the situation closely. Effective as of September 1st.
The same is true for Cocoa. This will increase by 25%, respectively and come into effect on September 1st.