Coffee prices have been stuck below the cost of production for the longest stretch since the global financial crisis, leading some producers to abandon crops and some to migrate for new jobs. The shift is being driven by currency fluctuations that are encouraging sales and production in Brazil, the world’s largest coffee producer, spurring a record crop that is driving down prices for other coffee-growing nations.
“We’re now back in real terms to where we were 20 years ago, when farmers abandoned land because they couldn’t make ends meet,” said Paul Rice, president and chief executive of Fair Trade USA, which works with 1 million coffee producers in 42 countries.
A 2017 study by Cornell University for Fair Trade USA placed the average cost of coffee production at $1.40 a pound. Coffee prices have been below that price for 20 straight months, the longest stretch since 2008, according to FactSet data.
Prices now hover around $1 a pound, poised to notch a 20% drop in 2018. It is a situation many expect to persist: The number of speculators betting on coffee prices has hit a record high in recent weeks, according to the U.S. Commodity Futures Trading Commission.
Analysts say the trouble started in Brazil, where the real has weakened 18% against the dollar, boosting that country’s exports even as coffee producers from Colombia to Honduras suffer from less-favorable exchange rates. Coffee is sold in dollars, allowing Brazilian producers to recoup more of their local currency when sales are converted.
Brazil exported 3.7 million 132-pound bags of coffee in November, an increase of roughly 24% from the same month a year earlier, according to the Brazilian coffee exporters group Cecafe, with year-to-date exports up 12% at 31.4 million bags. And all signs point to a very high Brazilian coffee crop next year, too, according to Commerzbank.
Currencies in other coffee-producing nations in Latin America have held up better—between 3% and 7% lower against the dollar this year.
In Nicaragua, the number of producers waiting to join the 38 cooperatives that make up PRODECOOP, an organization that provides financial and technical support to coffee growers, has increased by 10 times above what is typical when prices are higher, according to Merling Preza, the group’s director.
Many similar cooperatives that deal in fair-trade coffee face waiting lists, flooded by producers because they guarantee a minimum price of $1.40 a pound for coffee and there isn’t enough demand for fair-trade coffee among coffee-consuming nations. Only about 5% of coffee imports to the U.S. are fair-trade certified, even though roughly one-third of the harvest goes to fair-trade buyers.
The situation in Latin America stands in contrast to an industry that is moving upscale.
According to a 2018 study by the National Coffee Association, 48% of millennials drink gourmet coffee beverages every day. The Specialty Coffee Retail Index, which tracks the price of specialty coffee purchased at retail, rose 5.6% in the third quarter to $23.87 per pound, even as the composite price for green coffee purchased from farmers fell 11.1% to 99 cents a pound.
At the recent opening for Starbucks ’ new Reserve Roastery in the Chelsea section of New York City, specialty coffee from the far-flung Galapagos sold for $104 a pound in a three-story space that includes a working coffee roaster connected to some of the five coffee bars by a network of bronze tubes. Starbucks said that commodity prices are a fraction of the chain’s overall costs to sell coffee at retail.