Coffee Bean Prices Highest Since 2017 As Demand-Supply Gap Widens

A widening demand-supply gap is raising coffee bean prices as Asians are drinking more coffee, while Brazil and Vietnam could cut coffee production in 2020.

What Happened

Arabica coffee futures prices jumped about 30% from the previous month to around 132 cents per pound, the highest since late September 2017, according to The Nikkei.

Demand for coffee in many Asian countries is on the upsurge. Domestic coffee consumption in Indonesia, Vietnam, and China is expected to see 54%, 14%, and 16% increase respectively in the five-year period ending September 2020, according to a report by the U.S. Department of Agriculture.

Why It Matters

One of the world's biggest suppliers, Brazil, has downgraded its coffee production forecast by 10% in the year to September 2020 compared to the same period last year.

Brazil has downgraded its production forecast due to drought in Brazil's biggest coffee-producing region, Minas Gerais. "There had been only around 60% of rainfall compared with previous years," said a spokesperson at Japanese coffee dealer Ajinomoto AGF.

Other Asian countries also saw a drop in coffee production."Vietnam's coffee exports dropped 15% from a year ago in the first eleven months of 2019," said Shiro Ozawa, an adviser for the Japanese coffee trader Wataru and Co.

Coffee consumption, however, is increasing in Asia and worldwide.

Chinese coffee chain Luckin Coffee Inc – ADR LK increased its total number of stores by 209.5% year-over-year to 3,680 stores at the end of the third quarter ended Sept. 2019.

Worldwide also coffee consumption is on the upsurge, with the U.S. Department of Agriculture expecting a 14% jump in consumption in the year to end-September 2020 from five years ago.