Get Ready for a Coffee Price Hike
Just when you thought 2016 couldn't get any harder, analysts suggest that a coffee price hike is on its way for the second half of the year. Reuters released a poll last Thursday of industry analysts and experts, cautioning that coffee prices could soar to their highest levels since 2015 by year's end. The coffee industry is in the midst of its first supply deficit since 2010, just as U.S. coffee demand has hit an all-time high. Making things even more challenging, global demand has increased as well, putting an additional strain on market supply. These trends show no sign of stopping, either, making even higher prices in 2017 a likely possibility.
The culprit behind the coffee price rise? Weather-related disturbances, supply deficits, and global currency changes. Robusta beans, which are a less flavorful filler species of coffee bean, grow in climates that have taken the brunt of El Nino related dryness and drought. Robusta crops in southeast Asia and Brazil suffered damages from an unusually dry growing season, meaning that this year's haul is much smaller than it has been in years past. The price of robusta coffee will jump from about 92 cents per pound to 95 cents by September. And by the end of the year, it could cost $1.15 per pound. The price of Arabica beans—the kind you pay top dollar for at a specialty coffee shop—will see a 13 percent increase by the end of the year, and a 26 percent increase since 2015. That might not sound like much, but since this is the price of raw, un-roasted coffee, you can expect to see the cost of even the cheapest coffee brands to surge.
Another leading cause for the coffee price increase is the world's growing need for a caffeine fix. Global coffee consumption will grow by 1.2 percent over the next year, led by increased demand from established markets, such as the United States, as well as newcomers to the market, such as China, India, and Japan. As your economics professor told you, higher demand for limited supplies makes prices go up (hopefully you had coffee before class).
Worst of all, these sudden price increases may be here to stay. Brazilian coffee crops have experienced two successive years of drought, and Vietnam experienced an unusually dry growing season as well. Both countries failed to meet their harvest targets by significant measures as a result. If this trend continues, it's entirely likely that the 2011 coffee price of $3 per pound may come back by 2017. So, drink up now before we're all going back to the days of cutting coffee with random vegetation.