Why does the price of my cup of Joe change so frequently?

Fresh Roasted Daily

The top five coffee-producing countries account for about two-thirds of global production, and the two largest producers – Brazil and Vietnam – often account for about half of annual production. All of these countries have histories of political instability. Political crises such as leadership vacuums or corruption scandals can unnerve markets and create concerns about supply disruptions.

Coffee crops are highly sensitive to weather conditions. Crops need the right combination of rainfall and sunshine to yield maximum output. When these conditions don’t materialize, supply becomes restrained and prices rise. The fact that the bulk of coffee production is concentrated in a few countries exacerbates this problem. Global warming patterns have the potential to create long-term drought conditions in coffee-growing countries. If these patterns persist, coffee prices could head higher in the years ahead.

Although much of the world regularly consumes coffee, the beverage is not a necessary staple in the same way that grains such as wheat and rice are. Therefore, patterns in discretionary income and spending can play a significant role in moving prices. In developed regions such as the EU and the United States, trends in unemployment and average hourly earnings could serve as important barometers for changes in coffee consumption In emerging markets, overall economic growth could impact coffee consumption. China, for example, has shown a pattern of shifting toward Western dietary norms as its economy has matured. Although China has more tea than coffee drinkers, coffee may rival tea in the years ahead.

Coffee growers have to transport their beans to consumers and businesses around the world, and all forms of transportation require fuel. The price of oil can have a major impact on the price of coffee. Disruptions to refinery operations can cause the price of oil to rise. Buyers of coffee should expect prices for the commodity to have a positive relationship with energy prices.

The medical community has produced conflicting evidence about the health effects of drinking coffee. Coffee enthusiasts note the beverage’s benefits for disease prevention and its numerous antioxidants including vitamins B2 (riboflavin), B5 (pantothenic acid), and B1 (thiamin). However, caffeine in coffee can lead to anxiety and disrupt sleep in some people. It also is an addictive substance. The extent to which the public embraces the positive or negative message about coffee could impact demand and prices for the commodity.

Commodities, including coffee, are priced in US dollars. Sellers of coffee receive fewer dollars for their products when the US currency is strong and more dollars when the currency is weak. A strong US dollar can potentially depress coffee prices, while a weak US dollar is usually good for prices.

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