Coffee is an important component in our every day life. Billions of people consume it every day and with lifestyle brands like Starbucks growing worldwide, its demand is increasing. It is produced mostly in Brazil, Vietnam, Columbia, and Indonesia, with most of the demand coming from Asia, Europe, and United States.
While the demand for the Arabica and Robusta coffee blends has grown, their prices have decreased this year. Year to date, the price of coffee has decreased by more than 21%. This has happened mostly because of the increased demand and high production. According to the International Coffee Organization, all regions except South America have produced more coffee than a year ago.
Coffee producers around are faced with a challenge of production. Most of the coffee producers are small scale farmers. A coffee plant on average takes more than 4 years to grow and when it does the income per plant is not very much. This problem has caused many producers in countries like Kenya to abandon the crop for other plants like corn.
Coffee is a cyclical commodity. When the price falls, the producers tend to move to other plants and when the price rises, they tend to move back to it. The only difference is on the time it takes for a crop to grow.
Coffee prices have been falling and are currently trading at $101.7. This is the lowest level in more than five years. This price is below the 50 and 25-day moving average as shown below. The RSI is currently oversold at 26, which is the lowest level in months. In the short term, the price of coffee could remain lower as the supply increases. However, as the price falls, more producers are likely to move to other profitable plants, which will see the prices move higher.
