Coffee prices remain low as long-term fears remain

Fears stemming from the recent economic crash in China have helped contribute to low coffee prices on commodity markets, a report, published by the International Coffee Organization (ICO), states.

As well as the repercussions of a near financial crisis due to the Shanghai Stock Exchange’s Black Monday, the ICO have also said the meteorological reports of an exceptionally strong El Nino event – a series of unpredictable weather patterns which combine to impact global rainfall levels – has also provoked uncertainty in the market.

The result of these two events coming together saw the price of coffee dip to its lowest point in nineteen months in August, reaching $1.11 per pound at one point.

The monthly average was $1.21, which was at least a miniscule rise on July’s average.

But whilst the global financial sector has improved and stabilised, it is the impending weather patterns that are causing the most concern for those looking towards the future. The World Meteorological Organization (WMO) has said that the current El Nino event is the strongest since 1997/98 and could well be one of the strongest since 1950.

“While too early to evaluate its impact in coffee exporting countries,” the ICO report says, “we should continue to except human and ecological consequences…as well as an impact on infrastructure in a number of [coffee] producing regions.”

A third reason that the ICO have put forward for the continued slump is the continued devaluation in currencies against the US dollar. For instance, the Brazilian real and the Colombian peso have both depreciated by more than fifty percent in the past twelve months.

Other currencies that have dropped in value against the dollar include the Indonesian rupiah and the Vietnamese dong, and this trend has also seen the value of other commodities decline.

“The effect of these devaluations is to increase the remuneration in local currency of coffee sold in US dollars, thereby giving an incentive to farmers and exporters to release more coffee to the international market, even as the world price of coffee falls,” the ICO said.