Understanding Coffee Market Dynamics

The coffee market stands at a precarious juncture. History has shown that the end of every major bull market in coffee is marked by extreme volatility and destruction. This cycle appears no different. As a truly exotic commodity, coffee is primarily driven by supply, and this historic bull market has been no exception. Global stocks are at record lows, climate change continues to threaten production in key growing regions, and persistent dry weather in Brazil casts doubt on its ability to deliver the bumper crop needed to rebuild inventories. However, supply is not the only driver—demand also plays a critical role. Consumer sentiment and purchasing power influence off-take, a factor that is likely already in motion but will become even more pronounced as cheaper, FIFO-based inventory runs out and $3.00+ coffee begins to hit retail shelves. As reported earlier today, U.S. consumer sentiment has plummeted. Rising consumer debt—fueled by high credit card balances and late payments—has weighed on spending for over a year. The ongoing “Tariff War” headlines and the Trump Administration’s cuts to the federal workforce have only compounded economic uncertainty, further dampening sentiment. This is a critical factor in the price equation of this historic bull market, as record-high prices collide with potentially declining demand. Additionally, there are growing concerns about counterparty performance at source. Fears of defaults are rising as some market participants continue to chase even higher prices—behavior that has historically signaled topping action in previous major bull markets. Adding to the pressure are capital restrictions caused by the soaring margin requirements necessary to maintain hedge positions. This has contributed to a decline in Open Interest, further tightening liquidity in the market. A final note for those tracking technical indicators: Arabica's Long-Term Trend Strength (ADX) has reached an extreme historic high on monthly charts. This suggests the market could experience intense price volatility in the coming weeks. We do not doubt it. We strongly recommend you pay close attention to market developments and secure price protection wherever possible. MIKE NUGENT The University of Michigan consumer sentiment for the US plunged to 57.9 in March 2025, the lowest since November 2022, from 64.7 in February and well below forecasts of 63.1, preliminary estimates showed. Sentiment declined for a third straight month, with many consumers citing the high level of uncertainty around policy and other economic factors. Meanwhile, inflation expectations surged, with the year-ahead gauge rising to 4.9%, the highest reading since November 2022, from 4.3%. Also, inflation expectations for the next five years surged to 3.9% from 3.5% in February, the largest month-over-month increase seen since 1993. source: University of Michigan

*New Blog: Brazil Coffee Farmer Survey Explained* Brazil is the dominant force in the global coffee market, it’s responsible for nearly 40% of the world's annual coffee production. The challenge every year in coffee analysis, is understanding the crop and forecasting its size.  If you understand Brazil, you understand the coffee market.    To predict this essential origin’s coffee crop, we go straight to the source, the Brazilian coffee farmer. Every year, we conduct regular surveys with several hundred Brazilian coffee farmers to collect comprehensive data on the upcoming coffee crop.     These surveys provide firsthand insights into the Brazilian coffee crop, offering granular data on production expectations, crop conditions across individual producing regions, and detailed insights on both Arabica and Robusta crops.    In this article, we provide an overview of our Brazil farmer survey report, outlining its methodology and how to interpret its findings to gain a deep understanding of Brazil’s coffee production. [read more...] -- https://lnkd.in/ednUqDiW --  

As you sip your weekend coffee, I'd suggest reading this Bloomberg article (https://lnkd.in/g3ciH3Zj) and considering not only why coffee is more expensive but also asking yourself 'is coffee the canary in the coal mine'? Why do I ask this?... The dynamics that are driving up the price of coffee may seem like a 'perfect storm' but these dynamics are also impacting other global supply chains and are likely to get worse... 1. Risk concentration. Over 50% of the world's coffee is produced in either Brazil or Vietnam. The same is true for other crops; vanilla is an extreme example with 70% coming from 2 countries and, as we have seen, North Africa is heavily dependent on Russia and Ukraine for grains. Taiwan produces over 60% of the world's semiconductors. There are many more examples. And on a less macro scale, many companies rely on a single source for mission-critical inputs. 2. Climate. Coffee and agriculture in general are highly susceptible to severe weather and changes to the climate but many other industries rely on agricultural inputs and all industries are at the mercy of severe weather and rising temperatures; it may even become impossible to operate factories in certain parts of the world as temperatures rise. 3. Regulation. Coffee importers are rushing to get beans into the EU before the EU Deforestation Regulation kicks in at the end of the year. Environmental concerns, geopolitics and other factors are leading to more supply chain regulations and this is set to continue. More on the what, why, when and how of the EUDR is here: https://lnkd.in/gTvNrPBU. Enjoy your coffee! #supplychain #supplychainmanagement #supplychainrisk #supplychainriskmanagement Kenneth Scott Zuckerberg, Daniel Stanton, Brian Laung Aoaeh, CFA, Radu Palamariu, Rushit Shah, Dr. Marcell Vollmer, Wolfgang Lehmacher, Benjamin Gordon, Stan Aronow, Joe Carson, Greg Schlegel CPIM, CSP, Jonah, Scott Luton, Alan Amling, Kathy Fulton, Dr. Karsten Machholz, Tom Raftery, Sime Curkovic, Jason Miller, Thomas Madrecki, Sheri R. Hinish, Sunita Suryanarayan, Knut Alicke, Melissa Cantor, Laura Lorenzetti, Chris Rezendes, Alessandra Riemer, Ross Valentine, Jennifer Santiago, MBA, RIMS-CRMP, ARM, Mario Grande, Olivia Cipriano, Mike Rosenberg, Adam Vander Poel, Tejas Bhatt, MS CFS, Heather Ostis, Marion Gross, Matt Algar, Matt Gordon,Brady Stewart