MILAN – Coffee prices nosedived in the last session of the week. On Friday 4th April, the fall in the financial markets also dragged down coffee futures in New York and London. The ICE Arabica (May contract) lost 5% and closed at 365.70 cents. The ICE Robusta contract for July delivery lost $260 to close at $5,128, down 4.8%. After Thursday’s moderate losses, coffee futures were therefore also affected by the strong negative sentiment that pervaded the markets following Trump’s announcement of heavy tariffs.
Coffee prices are getting “caught in the general risk-off liquidation” across commodity markets, as hedge funds unwound long positions, Tomas Araujo, a trading associate at StoneX Group Inc., told Bloomberg.
Still, futures will continue to be “primarily influenced by supply concerns in key regions, despite an anticipated drop in US demand due to import reliance,” analysts from BMI, a unit of Fitch Group, said in a note.
The new tariffs introduced by the US administration, which will also affect green coffee imports, look set to raise prices even further in the country, with a potential negative impact on consumption.
The rates vary from country to country, ranging from the 46% and 32% imposed on Vietnam and Indonesia respectively to the 10% applied to most Central and South American producers.
Meanwhile, some in Central America are starting to look at other markets, such as the EU and China, Juan Luis Barrios, a prominent Guatemalan producer and former president of Anacafé, the influential National coffee association, told Bloomberg.
“There’s going to be a push — I’m going to do it actually, I already started — trying to increase sales to other markets and not be so dependent on the US,” Barrios said. About 40 per cent of Guatemala’s exports take the US route.
What will happen to coffee prices in the short term? In an interview with the Neue Zürcher Zeitung, Ico Executive Director Vanúsia Nogueira tries to put the situation into a medium to long-term perspective.
“Historically, coffee has always gone through price cycles,” says Nogueira. “These cycles usually last six to seven years,” adding that, despite prices nearing $4 a pound on futures markets, coffee is not especially expensive by historical standards. “Coffee reached its highest price after the oil crisis of the 1970s,” she says. “In April 1977, a pound of coffee cost $16.68, adjusted for today’s prices.”
The current price spike, adds Nogueira, is the result of a variety of factors, both on the demand and supply side, and throughout the value and logistics chain.
Speaking of resilience, Nogueira points out that coffee producers around the world are constantly adapting to climate change by introducing new varieties, expanding irrigation systems and using alternative farming methods.
Global coffee yields, for instance, have risen from about six 60-kilogram bags per hectare in 1960s to roughly 15 today.
Some regions – as is happening with wine-growing areas – could even benefit from a different, warmer climate. Early signs of this can be seen in South Africa and Australia. Coffee production is also expanding in California.
But this will hardly be enough to make up for the losses in traditional growing regions anytime soon.
It is therefore essential that “major producers today are able to adapt to climate change,” Nogueira points out.
Meanwhile, global demand continues to grow, despite high prices. Last year, consumption increased by 1.8% globally and 2.2% in Europe.
“For many people, coffee is essential. It’s part of everyday life” she adds. In wealthier countries especially, demand is relatively price inelastic – meaning consumers do not significantly reduce their intake when prices climb. Instead, they tend to shift their habits. Many people drink more coffee at home and less in cafés.
The situation is different in countries where the coffee culture is not yet fully established (and living standards are lower). There, price sensitivity is greater, and when costs rise, consumers often go back to tea., concludes Nogueira.
