Coffee prices have spiked more than 25 percent in recent weeks, lifted by slow harvests in Latin America that have thinned inventories, while global demand is on the rise.
A composite indicator that averages prices across different coffee bean types—including Other Milds, Brazilian Naturals, and Robustas—stood at $1.101 a pound on Tuesday. Some trading sessions in recent weeks have seen double-digit price differentials.
Dry Weather in Honduras
Traders cited by The Wall Street Journal blame the upward price pressure on thinning inventories caused by bad coffee bean harvests in Honduras. The country is the third-largest producer of arabica coffee in the world and is reeling from five years of consecutive droughts.Earlier this month, Honduras declared a national emergency due to a severe drought that has decimated staple-crop harvests of beans and maize by up to 80 percent in some areas, according to government figures.
“Over time, and with losses of the harvest, the problem is that people ... don’t have [food] stocks anymore. So every month, every week, every day, we have more people falling from moderate into severe food insecurity,” he said.
Another factor that could yield further upward price pressure is a rust fungus epidemic that threatens the existence of entire plantations.
‘Special Situation’
The rebound in coffee prices comes after months of historical lows, with prices falling by around 40 percent since the beginning of 2017, according to Nasdaq figures, and by nearly 70 percent since their 2011 highs of nearly $3 per pound.“The consequences are terrible,” she said, adding that many producers could no longer support themselves or invest in production.
Ferrari said coffee farmers in Guatemala are being paid 62-63 cents a pound but face production costs of between $1.30 and $1.50. If they can’t turn a profit, they often head north in search of work.
Fellow panelist, Professor William Hernandez Requejo of the University of California Irvine, said better economic conditions would cut immigration to the United States from Guatemala, El Salvador, and Honduras.
“South America’s production is expected to fall by 3.2 percent to 78.08 million bags, due largely to the decline in Brazil’s arabica output in its off-year of the biennial crop cycle,” the ICO said.
“World coffee consumption growth is likely to slow in 2019/20 in line with the slower growth expected for the global economy, and demand is projected to increase by 1.5 percent to 167.9 million bags,” the organization noted.