Why does the price of coffee change so much from one harvest to the next?

Central question: why does the price of coffee swing so much from one harvest to the next? Because supply depends on factors that are hard to control, such as weather and the plant cycle, while demand is relatively stable, and small changes in supply or expectations move the price.

Context

Coffee is an agricultural commodity traded in international markets. Its price combines what is expected to be produced, what exists in stock and what the world is expected to consume, in a market where many decisions are made on forecasts.

Mechanisms

• Weather. Frosts, droughts or irregular rain can reduce a harvest's output, and the expectation of this moves prices before the harvest.
• Crop cycle. The coffee tree does not always produce the same amount: in some varieties there are years of larger output and years of smaller output, which creates alternation between harvests.
• Stocks. High stocks cushion falls in supply; low stocks amplify the effect of any problem.
• Exchange rates. Since coffee is quoted in foreign currency, the exchange rate affects the amount the producer receives and the price in producing countries' domestic markets.
• Costs. Fertilizers, labor, energy and freight influence future supply.
• Demand and expectations. Changes in consumption, in trade and the activity of investors in the financial market also influence quotes.

Examples

If a producing region suffers a frost and the expectation is for a smaller harvest, buyers may pay more for the coffee available, and the price rises. Later, when a large harvest arrives and stocks recover, the price may fall. The final consumer does not always feel this immediately, because the retail price includes roasting, packaging, transport and margins. These are illustrative examples.

Limits

Each harvest has its own causes and several factors act at once, so it is hard to attribute a change to a single reason. This explanation is general, and real prices depend on updated data.

Sources

To follow along, consult reports from international coffee bodies, agriculture agencies and agricultural research institutes, noting the date and methodology.