History of coffee prices between 1960 and 2011 in US cents a pound
Source: UNCTAD secretariat based on data statistics Commodity price bulletin
Coffee is a commodity whose prices are generally considered very volatile with fairly rapid upward or downward marked movements.
During the period 1960-2011, the annual international instability * amounted to more than 40%, growing from less than 50 cents a pound in 1960 to over 200 cents per pound in the mid-1970s and about 50 cents a pound since the early 2000s but rose again in 2011 to almost 200 cents/pound.
The market is mainly marked by the interplay of supply and demand and expectations in this area. Situations of oversupply in the market, as in 1996 or since the early 2000s, drives the price of coffee down and cases of shortages in 1986-1987 as a result of drought in Brazil in 1994 are inversely up prices.
The weather or climate affecting these countries has more influence on international prices than Brazil that has been the largest producer of coffee in the world, with over 30% of the world exports and the largest exporter of Arabica with a third of the volume of exports worldwide.
Every four years, the influence of "El niño" (meteorological phenomenon of great importance affecting mainly South American and Asian continents, major producers of coffee in the world) is felt, and it generally leads to a sharp decline on the harvest. Such was the case in 1997, when Brazilian production decreased from nearly 28 million bags of coffee produced in 1996 (approx. 1.7 million tons of green coffee) to 22.8 million in 1997 (decrease of 20% aprox) and finally 34.7 million the year after.
Volatility of coffee prices in US cents per pound between 1960 and 2011
Source: UNCTAD secretariat based on data statistics Commodity price bulletin
Since 2004, prices are increasing almost constantly. Level rose from 54 cents (on average) a pound in 2004 to almost 180 cents per pound in September 2011. We had not seen such upward movements since May 1997.
Price increases happened very suddenly as the main producing countries of Latin America, including Brazil, Colombia and Mexico, were subject to big weather changes and this produced a fall in their crop production. Same thing happened in Vietnam. Because the rise continues and there are concerns about the Tropical Storm Danielle markets have reacted accordingly and have therefore reached a high. Nevertheless, indicators of short-term trends suggest that the upward rally continues.
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* Volatility or instability index
Price volatility is represented by the percent deviation of variables from the exponential trend line for a given period. The instability index is calculated using the following formula:
where Y (t) is the observed value of the variable y (t) is the estimated value by adjustment of the exponential trend observed values and n is the number of observations
The two best known financial centers for Futures and options exchange on coffee in terms of volume traded are:
• NYSE Euronext for robusta,
• New-York Board of Trade (NYBOT) for arabica.
However, there are other places that are of regional importance. Such is the case with contracts offered by:
• the Bolsa de Mercadorias & Futuros (BM & F) provides contracts for the differential between the export price of Brazilian coffee and price of arabica coffee traded on the NYBOT,
• the Coffee Futures Exchange of India Ltd (COFEI)
• the Tokyo Grain Exchange (TGE) (link to access the futures contract on the arabica. For robusta, click on the link in the top margin of the page
The main issue concerning the commodity market is the extreme volatility of prices paid to producers.
Over the period January 1980-December 2011, it was as shown below (see graphics):
Source: UNCTAD secretariat based on the statistics of the International Coffee Organization
Source: UNCTAD secretariat based on the statistics of the International Coffee Organization
Caution: in the graphs above, the MIN and MAX levels may be the prices of different countries over the period.
In the years 2000-2001 and 2010-2011, the volatility of prices paid to coffee producers increased in some countries. However, if we compare with the previous period 1980-1981 and 1989-1990, the proportional increase was relatively small.
In some countries, market conditions may have limited the transmission of international price volatility on prices paid to producers. We would need a further analysis to determine how these conditions could affect the volatility of the prices paid to producers.
The coffee year 2010-2011 recorded the highest prices in almost every country. In contrast, among the years 2000-2001 and 2003-2004, the producers of all countries received their lowest price levels due to the crisis in the exporting countries.
Coffee year 2004-2005 marked the beginning of rising prices on the international market which resulted in substantial increases in producer prices in many exporting countries.