Coffee futures are surging as consumers rush to caffeinate during coronavirus lockdown, but analysts warn a major price crash is on the horizon
- The price of coffee futures has risen by about 17% since February as consumers scramble to caffeinate themselves during coronavirus lockdown.
- The International Coffee Organisation says a 1% fall in GDP will lead to a 0.95% fall in consumption and vice versa
- The increase in coffee drinking at homes will not offset the fall in consumption at external retailers
Demand for coffee has surged in recent weeks as consumers scramble to caffeinate themselves during coronavirus lockdown, but analysts have warned that demand for beans could plummet as recession grips the world later in the year.
The price of Arabica coffee futures has jumped around 17% since the beginning of February on the ICE futures exchange.
The Coffee C Contract which is the benchmark for higher-quality Arabica coffee is currently hovering around $US117.
José Dauster Sette, executive director of the International Coffee Organisation, warned Markets Insider Wednesday: “Our model predicts that a 1% drop in GDP leads to a 0.95% fall in coffee consumption.”
The prediction is likely to alarm many caffeine addicts, with a global recession now seeming almost guaranteed as economies all but shut down amid the pandemic.
“In the medium term, there is quite a high unemployment rate and those who do not have an income could cut down non-essential expenses,” Sette said Wednesday.
“I would like to think for me coffee is essential but for many it is not as essential as food on the table or paying rent, adding that the coffee consumption will further reduce.”
Record numbers of people in the US have filed for unemployment benefits in the last month, according to the Department of Labour, while unemployment has soared all over the world in recent weeks.
Angus Kerr, commodity consultant at Coffee AG told Markets Insider: “Coffee has been in a long period of very low prices, having dropped as much as 30% below the last ten years average, despite continued growth in consumption. It was below production levels for most producing countries, and despite recent rises, still is.”
Short-term panic buying effect
Most experts attributed the higher coffee future prices to panic buying in supermarkets, and now that most shoppers have stocked up, coffee demand is likely to wane in the coming weeks.
Philip Searle, senior coffee trader at PRWakefield, said: “In supermarkets there was a peak as everybody bulk bought it, but it is back to normal now.”
Searle added: “The [rise in demand] was only for a month, whether it will continue will be surprising.”
ICO also published a report last week on how coronavirus will impact the global coffee sector.
The report showed despite steady overall growth in the sector, coffee prices have experienced a continued downward trend since 2016, dropping 30% below the average of the last ten years.
Sette also said that consumers in most developed countries in the US and Europe are more likely to drink coffee outside their homes than at home, meaning that the increased home consumption will not offset the loss in coffee consumption at outside retailers.
He added that in the interim he expects those who have stockpiled to no longer purchase coffee, a factor which may also weigh on demand.
The report said: “A more profound effect on global coffee demand can be expected as the result of a global recession triggered by the direct and indirect effects of the covid-19 pandemic.”
“Reduced household incomes could translate into lower demand for coffee in volume terms. In addition, price-sensitive consumers may substitute higher-value coffee by lower-value blends or brands.”