Coffee Prices: Victims of Great Crops and Terrible Currencies

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The Back ‘Grounds’

Coffee beans fall into one of two broad categories. Arabica is the lighter, less bitter, less caffeinated form of coffee that most developed-world consumers became accustomed to in past decades. It represents about 60 percent of global production. Robusta, on the other hand, is darker, much more bitter, and more heavily caffeinated. This variety has made some inroads into blended coffees as consumers’ tastes have broadened and become more sophisticated and tolerant of its bitterness. Like other tropical commodities, including sugar and cocoa, coffee production is heavily concentrated in certain geographical regions. So far this year, arabica prices are down 19 percent, while robusta has dropped just 9 percent.

Meet the Producers

Gro Intelligence analysts have the ability to easily weight geospatial/satellite-based variables in relation to various crops. The next few paragraphs discuss the current crop conditions for the different coffees in the top six producer countries. Broadly speaking, growing conditions look good. Coffee-price bulls, who prosper when crop production lags, will see little to inspire them in the satellite data. Some possible exceptions are Vietnam and Honduras, where recent growing conditions, although still good, have declined somewhat.

South America: Brazil and Colombia

Brazil produces the most coffee in the world by far, so weather and crop health there dominate the discussion. It’s the only country in the world that plays an important role in both arabica and robusta coffee production. Portuguese colonists began significant coffee cultivation there in the early 1700s.

Historically, Brazilian coffee growers have commonly suffered catastrophic frost events, which can suddenly destroy up to 50 percent of the crop in a matter of days. The last freeze occurred in 2000, and many observers think that warming temperatures and changes to coffee-growing practices have made such risky events much less likely. Still, coffee traders can tend to get nervous when winter arrives in the Southern Hemisphere. When we study conditions weighted by the presence of coffee trees, we see a flourishing Brazilian crop.

Colombian coffee sits too close to the equator to experience the freeze problem, but it has grappled with pervasive and harmful disease coffee rust for over a century. Nevertheless, it has managed to remain the No. 2 arabica producer in the world and has made strides lately in the necessary replacement of old trees with more rust-resistant and productive ones. Like the other countries in this study, weather conditions this year have helped to produce a record crop and give no cause for alarm for next year.

Evapotranspiration is the sum of evaporation from the land surface and plant canopy, and transpiration from plant leaves. It indicates the health of the plants in the area studied, and we used its values as measurements for coffee’s health in each growing region. In our charts, 100 represents normal evapotranspiration, with values below 100 indicating dryness and values above 100 indicating better-than-normal growing conditions.

Southeast Asia: Vietnam and Indonesia

Coffee production arrived in Vietnam in the early 1800s, more than a century after its appearance in what is now Latin America. After the cessation of war with the US in 1974, Vietnam quickly rose to become the world’s No. 2 coffee producer, with the important distinction that 95 percent of its production is robusta. Currently, Vietnam’s coffee crop looks fine, but previously excellent conditions have deteriorated rapidly of late. If the decline of the last three months persists, we could see a problem in the medium term.

Indonesian production began in the early 1700s under the Dutch East India Company. Similarly to Vietnam, Indonesia grows more than 87% robusta. Crop conditions have declined lately due to Southeast Asian weather phenomena, but have affected Indonesia much less rapidly and threateningly than Vietnam.

Central America: Honduras

Honduran production didn’t begin in earnest until the late 19th century, but the country has risen to become the world’s fifth-largest producer, and the third-largest arabica producer. Honduras shares most soil and climatic attributes with nearby countries. Central America and Mexico combined harvest nearly 20 million bags of arabica per year, far exceeding the output of No. 2 producer Colombia. Central American coffee-growing conditions, as exemplified by Honduras, still look OK, but a rapid decline similar to that seen in Southeast Asia could become an issue for next year’s crop.

Africa: Ethiopia

It’s not known when coffee cultivation began in Ethiopia. In fact, scientists believe that the arabica tree originated there. Despite that head start, Ethiopia is only the No. 6 coffee producer in the world. The industry plays a critical role in the local economy, accounting for 27% of Ethiopia’s exports. The local Yirgacheffe variety has many fans in the community of coffee connoisseurs. From a satellite perspective, current conditions in Ethiopia’s coffee acreage are significantly better than normal, raising the possibility of increased crop size.


Coffee demand continues to increase worldwide at a steady, but unexciting pace. It seems reasonable to expect this longtime trend to continue as populations and incomes increase. In fact, in Gro’s article on tea from 1 August 2018, we highlighted the tendency for people to increase their caffeine consumption as their incomes increased. The effect has some subtlety in coffee’s case, though. Data show that when incomes decrease, consumers tend to switch from coffee to tea, since it is cheaper. So coffee demand growth depends, to some extent, on continued prosperity worldwide and, importantly, continued growth in developing countries.

Global coffee production has handily kept pace with demand, having exceeded consumption every year since 2009. Good weather has helped this trend, along with greater efficiencies and reliability of production in the industry.


The fact that the US dollar now buys 25 percent more of the currency of the largest coffee producer in the world has weighed heavily on the global dollar price of coffee. Since we can compare price performance of arabica and robusta, we can disentangle the effects of foreign-exchange movements and those of fundamental factors. Arabica prices have declined 19 percent in 2018, while robusta prices have only lost 9 percent in the same period. This huge disparity in price changes for such similar items indicates that currency movements have driven a significant portion of this year’s severe arabica price decline.

The supply/demand balance has also hurt prices after nine consecutive years of surplus coffee production. If weather factors reduce supplies in 2019, or demand increases more rapidly than anticipated, we could see prices get a boost due to fundamentals. Crop-weighted satellite data don’t show anything of that magnitude yet, but some deterioration has become visible in Vietnam and Honduras.

Overall, the outlook for coffee prices will depend on both currency movements and weather. Gro subscribers can monitor crop health from satellites in close to real time as a critical input to their price forecasting efforts, although these will also need to include a view on foreign-exchange markets.

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