In 2021, the price of oats has increased by 87%, while the price of coffee has increased by 81%. Such growth has outstripped oil and gas, which are still recovering strongly from a period of strict world restrictions against Covid-19.
Agricultural products are not usually a highly volatile commodity group. However, specific events can have a huge impact on these items.
Trading session on December 23, the price of robusta coffee futures on the Intercontinental Exchange (ICE) rose to the highest level in more than a decade as supply continued to be disrupted by related problems. to the supply chain, including a lack of manpower and shipping containers. Accordingly, Robusta coffee in March 2022 reached 2,381 USD/ton – the highest level since August 2011. Dealers said the market continued to be supported by strong buying demand for stockpiling amid supply chain disruptions as the flow of coffee from Vietnam – the world’s top robusta producer – was not smooth. , although the coffee harvest in Vietnam is progressing well with more than 60% already harvested in dry weather conditions.
The amount of coffee stocked at the warehouses of the IEC floor on December 22 was only 99,190 tons, down from 109,040 tons a month earlier.
Weather conditions seriously affect crops
Coffee and oats are different crops, coffee is grown in areas with tropical climates, and oats are suitable for northern environments. Both crops, however, have faced extreme weather conditions over the past year, which often drive food commodity prices up.
The spike in coffee prices was triggered by droughts followed by severe frosts in Brazil, which accounts for a third of global coffee production. According to Conab, Brazil’s agricultural forecasting agency, the country’s production of arabica – the most consumed coffee globally – is down nearly 40% from last year. Meanwhile, too much rain affects the growing conditions of coffee trees in Colombia, the world’s second-largest supplier of arabica.
Supply chain challenges, such as port congestion or labor shortages, also limit the movement of coffee around the world, and rising energy costs affecting fertilizer prices also contribute to higher prices. coffee. Meanwhile, to plant and harvest additional coffee trees takes several years.
As for oats, which are mainly used for animal fodder, drought across the western United States starting in 2020 forced farmers to reduce the area planted to oats this year, leading to U.S. production is also down 40% this year, pushing prices up.
In addition, the global demand for oats is constantly increasing. Tom Brady, CEO of the JPMorgan Commodity Center at the Colorado Business School Denver, as emerging-market economies grow, consumer incomes increase, and the number of people in the middle class increases. As a result, flows also increase, leading to dietary changes – driving demand for more meat, “So it’s the supply and demand fundamentals as well as geopolitics” that are driving prices. increased chemistry”.
When will the ‘burden’ of rising raw material prices shift to cafes and shops?
Rising commodity futures prices mean that coffee and oats are likely to become more expensive in the future.
In fact, the price burden may have already begun to shift onto the shoulders of consumers. The prices of cereals and flour products rose 4.6 percent year-on-year, according to USDA data. The price of coffee in the US has increased 7% in the past year, according to the US Bureau of Labor Statistics.
According to David Ortega, an associate professor at Michigan State University who focuses on agribusiness: It may take a while for the full price increase of raw materials to fully manifest in downstream products, because Coffee is a hoardable commodity. For example, Starbucks in July 2021 said it bought coffee 12 to 18 months in advance. Retailers are also determining how much and when to pass prices on to consumers.
According to Assoc. “It’s unusual to see these prices go up,” he said. “The effects of the pandemic are already evident in the prices of some commodities, but most of those price increases will be passed on to consumers’ wallets.” use”.
References: Bloomberg, Ancstockinvestment
