The Price of Specialty Coffee Beans: Why Some Are Cheap and Others Expensive

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The Economics of Coffee Pricing

From a political perspective, the prices of goods in the market are inseparable from this law: simply put, supply and demand. When supply exceeds demand, prices fall; conversely, prices naturally rise. There's also the saying "scarcity makes things valuable" - when quantity is extremely scarce, prices will also be high.

If only coffee pricing could be as simple as applying supply and demand relationships. There are many factors that affect coffee prices, at least from various analytical perspectives. In 2011, coffee futures prices once broke through 300 US cents per pound, while in the first half of 2020, they bottomed out near 85 US cents per pound. Such roller-coaster price trends are truly difficult to predict. Beyond factors of supply and demand changes, weather, exchange rates, politics, wars, China-US relations, and even a tweet from Trump could potentially influence coffee prices.

Coffee Production

According to market analysis, every major fluctuation in futures prices is due to production issues in coffee-producing countries, such as rust disease in Central and South America, drought in Africa, or bumper harvests in Brazil.

Futures Speculation

What are coffee futures? What factors influence coffee futures prices?

Like other futures commodities, coffee also has its own trading code, contract value, and margin requirements.

Coffee futures belong to commodity futures with very high global trading volume. Currently, there are no coffee futures in China. The main coffee futures market is in the United States, also known as US coffee, with trading code NYKCO. It's the Type C coffee futures launched by the US NYBOT exchange (New York Board of Trade).

Like other commodities, coffee futures are mainly affected by market supply and demand. Just as Chinese people drink tea, coffee is one of the main beverages internationally, has refreshing effects, and is very popular. Therefore, coffee futures prices are greatly influenced by market supply and demand, and their speculative nature is also significant. The most important influencing factors are climate, harvest, etc., because coffee demand doesn't change much.

It is precisely because of the large fluctuations in the coffee futures market that more and more speculators are attracted to find opportunities. Most of this money flows into the coffee futures market in the form of speculative funds, but in reality, the buyers have no demand to purchase actual coffee products, but rather use price differences as returns. On one hand, futures speculation improves market liquidity, but on the other hand, it also creates market confusion.

Conclusion

In summary, coffee is the second largest trading commodity globally after crude oil. It belongs to general commodities, bulk commodities, and agricultural products. As a general commodity, it means coffee has commodity attributes, and its prices are affected by supply and demand factors and cost factors. As a bulk commodity, it means coffee has financial attributes, and its prices are affected by dollar factors and geopolitical factors. As an agricultural product, it means that when analyzing and researching coffee prices, the relationship between its growth and climate cannot be ignored.

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