Since the start of the pandemic, coffee prices escalated steadily due to high input prices, shipping container availability and supply slowdown from Brazil, the largest producer of the commodity.
Now, with trade opening up, the deficit in the market has been corrected and this has resulted in international prices cooling off 4.5 percent this week.
Both varieties of coffee -Robusta and Arabica have seen the price correction with the former's price falling to a 10.5-month low.
When it comes to Arabica, Columbia is the second-largest producer and exporter and supply from there has increased by nearly six percent. Meanwhile, Vietnam, which is the biggest Robusta coffee producer also has seen exports shoot up nearly 13 percent.
The International Coffee Organisation expects that by 2022-23, production will increase by 4.7 percent. As per the latest data released by them, 2020-21 saw a deficit of 33.13 million tonne and last year as well there was a deficit of 7.3 million tonne. However, this year, a surplus of 3.5 million tonne is expected.
The history of coffee has been characterised by extreme price volatility. Periods of excessive supplies have progressively driven down prices until a catastrophic event – either environmental or political – results in a correction.
The volume of production regularly fluctuates between “on” and “off” years, and usually, this is not sufficient to greatly affect prices because producers mitigate their risks through stock management and hedging prices using the coffee futures market.