And so as those exchanges are reporting that they are at 15-month record loads of the stock that's available in their exchanges, we call these certified stocks, so the exchanges have to certify the coffee that comes into them, those are at record lows. And as they're at record lows, people are starting to realize that, or panic, are they going to get access? And this is basic supply and demand economics. When the supply is low and the demand hasn't shifted, the price goes up.
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Welcome to the Daily Coffee Pro by Mapper Forward Friends. I'm your host, Leigh Sofar, and this is episode two of a five-part series with just me. This is the second time we've done this this year. We are talking about what's going on with coffee.
And in the last episode, we talked about some changes that are happening with Mapper Forward as well as where we're at with the coffee crisis. So where we're at in the coffee crisis is that it hasn't gone away. To put it lightly, the coffee crisis is starting to move into a new phase. And before we talk about what that new phase really is, I want to talk about one of the elements of the coffee crisis, and that is what's been happening to the price of coffee.
And there's been a lot of talk this year about, will the price of coffee go up? Will it go down? Is it going to stagnate? Have we reached the ceiling?
Are we going to bottom out? All of these kinds of things are things that people have been considering and asking, and there's been a lot of confusion around it. Now, what we've observed this year is that we saw coffee hit a high of $4.40, and then we saw coffee go as low as, I believe it was around $2.89, maybe a little lower than that. And now what we are seeing as of today, at the recording of this podcast on the 27th of August, the price is around $3.70.
So we've seen it go from around $3.70, and it keeps kind of heading up just a touch over $3.90. What does this mean? And why is this happening? So for those who don't remember, just a refresher, where is this pricing coming from?
This is pricing on the futures market of the ice exchange, where coffee is traded. It's an exchange that's based in New York. It trades Arabica coffee. And basically what this is, this is where commercial Arabica coffee is sold.
So there are two types of traders that can buy these contracts, and each contract is for about a container's worth of coffee. And you buy a contract that you're going to take delivery of in the future. And you buy this contract. It has a price that's associated with it.
And if you hold on to that contract through to the end, you will receive that coffee. And the people who do that are people who are actually operating in the coffee industry. But there are speculators that operate in this ecosystem as well. And these are people who are virtually like, well, basically like day traders in coffee.
They trade different commodity markets. It could be soy. It could be frozen orange juice. It could be corn.
It could be a myriad of different things, or maybe just coffee. And what they do is they buy coffee when they think it's low, and then they sell those contracts when they get higher. And so they look to make money. We call these people speculators.
So they are speculating on where coffee is going to go. We have a historic or a record number of speculators in the coffee market buying and trading, buying and selling contracts these past couple of years, basically. And they are playing a significant role in moving the price on the sea market. But is the sea market connected back to the specialty market?
Yes, 100% in most cases. Why? Well, that's because people at Origin are basing the specialty price on their day price of what the sea market is operating at. And so when the sea market shifts, the price of specialty shifts because the base price, which is the sea price, is shifting up and down.
OK, so when coffee, historically, the average has been at around $1.40. Now we're seeing these really high prices compared to the historic number. But in fact, this number is quite comparable to what the price was 50 years ago. Now, the price 50 years ago, if we were to adjust that for inflation over that 50 years, that $3 to $4 price that you would be seeing back then would actually now be at $14.
So coffee on the sea market, commercial-grade coffee on the sea market, if it tracked with inflation, should be at around $14. But it is not. It is still at the same price that it was 50 years ago. And from 50 years ago until now, we have seen that price drop well below $1.
And this volatility, this up and down and up and down of the coffee price has left it mostly a buyer's market until now. Now it is a seller's market. What that means is for the majority of the time, people in the coffee industry over the past 50 years have been in a position where coffee was cheap. And because coffee was cheap, they could build these businesses on cheap coffee.
And as they built these businesses on cheap coffee, the seller was suffering. So the seller was absorbing the impact of this cheap coffee. And so what we started to see was that the producers were subsidizing the coffee industry that was selling coffee to consumers at a very cheap price. Now that has flipped because these businesses who built these roasteries and these cafes on coffee that was, or these big, huge corporations that built these businesses on coffee that was priced at around an average of $1.40 a pound.
These businesses are now having to adjust to coffee prices that are more than double that. And that in an ecosystem where it's not just coffee that's going up, it's labor that's going up and all the other raw materials and packaging that they need, all of that is skyrocketing. On top of that, you have to add in that tariffs are a major part of what's happening with regards to coffee for the number one consuming country in the world. And so we have a very interesting evolving situation in 2025 around pricing.
Now what we saw over the last couple of weeks was, or let's say the last month, couple of months, we saw that people thought that there was some reprieve happening because they thought that the price of coffee was going to go down. And they thought that the price of coffee was going to stabilize because it was going lower. It was heading down below $3. And as it headed down below $3 to around $2.78, people thought, well, if it stabilizes here, we can try and figure out how to build a coffee industry around this, right?
It's not super high at the $4.40. Remember, that's still not a super high price. That is still not compensating the producer adequately enough to build a sustainable business. It needs to be much higher than that to adjust for inflation.
But from the roses' perspective and the big corporations' perspective, if the price settled around $2.50, $2.80, they were going to be able to make that work. And then the price started to take off again about a week ago, two weeks now. Now, why did that happen? There are three main reasons for that happening.
Number one, the main reason for this is that the supply of coffee to the exchange. Remember what we were saying about how when you buy a contract and you hold that contract through to the end, you're going to take a receipt of that coffee. Well, that coffee is going to get supplied to you from these exchanges that are positioned around the world. Now, those exchanges are running really, really low on coffee.
And what that means is that they are having trouble delivering on the contracts that they have to make good on. And so as those exchanges are reporting that they are at 15-month record loads of the stock that's available in their exchanges, we call these certified stocks. So the exchanges have to certify the coffee that comes into them. Those are at record lows.
And as they're at record lows, people are starting to realize that, or panic, are they going to get access? And this basic supply and demand economics, when the supply is low and the demand hasn't shifted, the price goes up. So that's where we're at. That's the number one problem right now of what's driving the price of coffee up.
Number two is the tariffs. These tariffs are creating a lot of nervousness for producers, particularly in Brazil. Why? Well, because the tariffs of coffee from Brazil into the United States are 50%.
This has left a lot of coffee producers very upset, very nervous, and not quite sure what's going to happen. And so they are holding back on delivering coffee to the exchanges. They don't know if the price of coffee is going to continue to go up. They don't know if their buyers are going to actually cancel their contracts.
They don't know if they're going to – what's going to come, basically. And so they're playing it safe. They're selling whatever they need to cover the costs that they have in the immediate future, and they're holding on to the rest of the coffee. That's in Brazil.
Now, this is the second reason. The third reason is that we had some weather reports that were saying that there was – first of all, it was warning of some frost that was going to happen in Brazil. So that ticks the price up a little bit. And then when that frost eventuated, it only hit certain parts of the Sahara region, a major coffee-growing region in Brazil.
As it hit that region, it hit a few parts of it, but the damage we won't know until next year. It wasn't a huge hit like we had in 2021, but it still did hit parts. We're not going to know the extent of that until the next harvest. Most of the harvest in Brazil is ahead of schedule.
It's called an advanced harvest. And so even though this harvest is ahead of schedule, that coffee is not going to make it into the exchanges because, as we said, the producers in Brazil are being very cautious. And so as those stocks decline, we are starting to see the prices continue to go up. So this is happening at a time where Brazil is expected to experience a 10% decrease in the harvest this year and perhaps more next year.
When I say 10% decrease, that's not year on year. I mean it's a 10% decrease in what they expected was going to be the harvest this year. And we are seeing a lot of that kind of volatility because, as we mentioned in the previous episode, there are a lot of layers to this coffee crisis. And one of them is that the weather is making it very hard to grow coffee and it's making it very challenging for producers.
That volatility is increasing to create a difficult environment for producers to stabilize their yield of coffee. It's happening globally. So I hope that that has helped you understand what's happening with the price of coffee. Where do we expect it to go?
We're going to talk about where that is going to happen in the last episode of this series. But that's just telling you where pricing is at with regards to the coffee crisis right now. In the next episode, we're going to talk about a very important subject, which is consolidation. So join us for that.
Peace out for Peanut Butter. Have an amazing rest of your day. This episode is part of a five-part series produced by Mapa Forward. Check the full playlist and guest details in the show notes as well as how you can support our work in the coffee industry.
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