Coffee is trading below $US1 a pound (0.45 cents kilo) for the first time in more than 12-years but according to experts, the price fall is unlikely to be reflected at the local cafe.
Arabica coffee is trading at its lowest price since mid-2006 as currency pressures in emerging markets and a bumper crop boosts supply into the market.
“At the moment, we’re at extremely low prices,” said Rabobank senior analyst for agri commodity markets Carlos Mera. “It was on the 18th of September that we saw 12-year lows in arabica coffee prices. We’ve had very good crops around the world. We’re looking at the second record crop in Vietnam, good crops in Honduras, Colombia and overall, fairly good crops.”
Arabica coffee represents 60 per cent of global production and is the main species of coffee consumed in Australia. While the price of arabica has fallen 28.5 per cent for the year-to-date, consumers are unlikely to notice any changes in their daily cup of coffee.
“The coffee shop only uses a small amount. It may be 4 per cent or less of the total cost,” said Mr Mera. “On the supermarket level, that market is more competitive so we might expect to see some changes there but they might be rather small.”
Mug Life cafe owner Geoff Bannister said he hadn’t noticed any change to the price he was being charged by his local wholesaler.
“I would say from our end, it definitely hasn’t changed for us,” he said. “The average cafe pays about $26 a kilo and we put 22 grams in each shot.”
At that price, each coffee shot contains 57.2¢ of coffee which Mr Bannister said is already a tighter margin than he would ideally like.
“We’re at $3.50 for a small and $4 for a large,” he said. “In comparison, we find Melbourne coffee is about 50¢ more expensive. We’d love to increase our prices but we’re wary that we can’t do it unless everyone else does it.”
He said larger coffee chains were able to record a much bigger margin than smaller cafes. “If you look at McDonalds coffee, it’s the most expensive and they only pay $9 a kilo,” he said.
Phil Gough, owner of The Mobile Coffee Group, said there had been only a very small decrease in the price he was paying his importer for green, unroasted coffee beans and that cafe coffee prices were more likely to rise than fall in the near term.
“We can get coffee from Brazil for about $5 a kilo green,” he said. “The pricing is a bit better than where it’s been but in reaction to where the market’s been, its not much. If anything, coffee prices are going up in cafes. The margins in running cafes are small and it’s a hard business. It’s hard to turn a profit.”
Rabobank’s Mr Mera said the coffee price had been falling due to a range of macro influences, including the recent weakness in emerging markets where a large proportion of global coffee supply comes from.
“We have a lot of macro influences,” he said. “The Brazilian real is very weak and this means that the market has become very competitive.”
The Brazilian real has fallen 17.9 per cent against the US dollar for the year to date, and investors took advantage of the low prices and high differentials to take futures coverage, a move that further increased the contango in the market.
Recent speculative selling also resulted in the largest non-commerical net short position on arabica futures ever, at -100,000 lots, double the pre-December 2017 record.
Mr Mera said while the price was likely to pick up from its current levels soon, the low prices had put pressure on coffee farmers.
“The price is a big concern because unlike most commodities, coffee is produced by smaller farmers with up 100 million people that depend on the coffee business. It has a much more human aspect to it,” he said.
Mr Mera added that coffee companies and governments needed to do more to support farmers who have no other choice other than to farm coffee.
“Many companies market themselves as coffee companies but the cost of coffee is very little for them. If we see, like we’ve seen in the past, millions of farmers in poverty, there might be a PR crisis coming for them and what are they going to do? It would be good for them to have a sustainability scheme in place.”
“Coffee is really just the farmer with his land and he will continue to do that even if he goes into poverty. If governments, instead of trying to increase productivity, might actually try to help farmers. But it’s difficult.”