How much is your morning coffee going to cost you this year or next?
Likely a lot more than it was recently.
“The coffee market has a set up for all-time highs to be seen over the next crop cycle,” writes Shawn Hackett in the Hackett Money Flow Commodities Report which focuses on agricultural products.
A record price of $3.11 was hit in March 1977, according to data from the Trading Economics website. That compares to $2.29 now.
In other words, soon you’ll likely pay more than ever for a cappuccino or latte or god forbid an espresso.
What you need to do is either cut back on other expenses, earn more, or pray for a near-miracle. In the worst case scenario you could give up your cup of morning Joe, but somehow I doubt that would be possible for many.
That’s just a reality facing the world.
Inventory Levels At Decades Low
The global demand-supply balance for coffee beans is looking distinctly shaky right now. That’s based on an analysis of data from the U.S. Department of Agriculture.
Global consumption for the 2023-24 season is estimated to be 170 million 60 kilogram bags. That’s higher than any year for at least 20 years. Its up from 125 million bags in forth 2005-2006 growing season.
However, over the same period what’s left in inventory at the beginning of the growing season has shrunk dramatically as a percentage of consumption.
At the beginning of the 23-24 season starting inventory was a mere 16% of consumption. That’s not only the lowest in at least two decades but also down dramatically from 33% in the 2005-06 season. Proportionately, that means inventory levels have more than halved relative to consumption.
Little Room for Disruption in Coffee Growing Areas
It also means that there is little room for a disruption is this years supply of beans. And that’s going to be tricky especially given the two of the largest growing countries have been subject to unfavorable weather conditions.
The Hackett report explains as follows:
- “All time record heat in Vietnam core coffee areas in the Central Highlands and bone-dry weather have singed the flowering process and ruptured the conversion to cherries.”
Cherries are necessary for the production of coffee beans. And the current Vietnamese problem is very similar to the situation in Brazil last year.
Could it get even worse? Yes. The Hackett report explains as follows:
- “While we believe the risk of a frost this June/July is not very likely all it would take is a threat to further light this candle.”
Worse weather doesn’t have to actually arrive to scare investors into bidding up futures prices. Indeed a mere hint of the imminent arrival of unfavorable growing conditions could spark enough fear to ignite a major rally.
Investors wishing to take a bet on higher coffee prices might just want to stockpile as much as possible. Alternatively, try investing in long-dated futures contracts. However, the latter can be exceptionally volatile especially given the extreme weather recently seen in the key growing regions.
