The Volatile Coffee Market

Fundamentals and Market Dynamics driving coffee KC price? Not this time.

4 min readMar 26, 2024

Let’s start with the general market situation.

Imagine the global economy as a big garden, and right now, it’s springtime. Just like how ice melts when it gets warmer outside, the rules about how countries handle their money, called monetary policy, are starting to loosen up a bit. This means that interest rates, the price of borrowing money, is starting to go down, kind of like how flowers start to bloom when it gets warmer.

Now, Switzerland, which is known for being really careful with its money, said it’s going to be the first country in the Western world to lower interest rates again. This surprised some people because other big countries like those in Europe and England haven’t said they’ll do the same thing yet.

In the US, the person in charge of making these decisions, Jerome Powell, talked about lowering interest rates a few times during the summer. This is seen as a way to keep prices from going up too fast, which is called inflation, and to keep the whole world from going into a big economic slump, which is like a really bad recession.

But even with all these changes, prices are still pretty high, which means things might not get easier as quickly as everyone wants them to.

Now, Japan is doing something different. For about 30 years, they’ve been keeping interest rates super low, even below zero sometimes. But now, they’re saying they’re going to start raising them. This is a big deal because most people doing business in Japan have never seen interest rates go up during their careers. It’s like suddenly having to deal with a new kind of weather in the garden after getting used to the same old pattern for a long time.

Now let’s talk about Coffee…

The international coffee prices in New York (Arabica) and London (Robusta) had a relatively calm week without significant disruptions. The Robusta tightness continues to sustain prices at historic high levels. Farmers in Vietnam are fetching very high prices. We are seeing a situation where Robusta prices trade at 15 to 30 c/lb discount to Arabica prices only.

This narrow “arbitrage” brings cheaper, low-grade Arabicas from Central America back into the game.

International Arabica prices in New York closed the week at 184.45 c/lb (KCK24), gaining a moderate 1% compared to the previous Friday’s close. Robusta continues to move on a high stratosphere and locked in a 1.5% gain, closing the week at 3,358 USD/MT.

CENTRAL AMERICA

Moving to coffee in Central America, where there seems to be more upside than downside at the moment. Guatemala and Honduras have entered the list of countries that have joined JDE Peet’s and Enveritas in an agreement to verify that exported coffees to the European Union are not grown on land deforested after the year 2020, as required by the new European Union Deforestation Regulation (EUDR). Nations in this partnership now represent over 40% of coffee farmers globally, covering Guatemala, Honduras, Peru, Tanzania, Ethiopia, Uganda, and PNG.

The harvest is almost complete in most of the Central American region. In Honduras, only about 5–10% is left to be picked in higher altitude regions such as La Paz, Intibucá, and Santa Barbara with currently estimating a 2% decrease of exports compared to 2022/2023's crop.

In Nicaragua, only a little coffee is left to be picked in Nueva Segovia and Jinotega. Similarly, Costa Rica’s harvest is pretty much complete, too. Overall, total production volumes are estimated to be almost unchanged from the last coffee year across most Central American countries.

As the harvest draws to a close, operations at the washing stations are gradually winding down. On the other hand, dry mills remain active as dried parchment is still coming in.

Nicaragua is very well-advanced with sales. With the harvest coming to an end, the focus is now on exports and liquidating remaining stocks. FOB demand appears to be steady. In comparison, Honduras seems to be behind in sales, with FOB demand being slow and FOB differentials remaining firm. Exporters are open to bids as they seek to move coffee from warehouses.

In the Panama Canal, the drought-caused issues are improving. The daily transit lots have been increased, easing congestion to some extent. Besides this, port operations are currently running without significant disruptions.

Coffee production estimates in Central America:

Now, moving on to other commodities, meanwhile cocoa prices reach for the stars, olive oil is coming down: 10% since the all-time high in February. So is the coffee market keeping quiet??

Below, an interactive chart of historical daily coffee prices back to 1969. The price shown is in U.S. Dollars per pound. The current price of coffee as of March 25, 2024 is $1.8565 per pound.