We are living in times of rapid transformation. As I have mentioned before, technological disruption, demographic shifts, and climate change are key catalysts driving significant global macroeconomic trends.
Cocoa prices skyrocketed last year and have remained at historical highs for over a year. Coffee and cocoa share many similarities: both are soft commodities grown exclusively in tropical regions, require a long growth period (approximately four years from planting to harvest), and are labor-intensive crops, as they cannot be easily mechanized. This last characteristic means they are the only commodities where most production is done by smallholder farmers in developing countries that remain poor at the expense of big roasters' margins and low consumer prices.
You have the power to make an impact by choosing where and from whom you buy your coffee and cocoa.
You can educate your customers about these realities. This should be your differentiation from big commercial roasters that are preventing the market to change and so are responsible for keeping farmers poor and pressing the environment to death.
Coffee prices have increased this year, although not as dramatically as cocoa. While coffee has barely surpassed its previous historical highs, cocoa has reached nearly three times its all-time high and five to six times its average price over the last 30 years.
This suggests that coffee still has room to grow—it could double or triple from current levels if it follows cocoa's trajectory. Market forces are strikingly similar.
Extreme weather patterns have reduced production, causing supply shortages.
For years, coffee and cocoa farmers have been trapped in poverty due to low prices. As a result, their children don't want to produce coffee or cacao anymore and there is a problem of a lack of young people to sustain production. We are starting to see this problem as part of the lack of production after years of losing people in the fields.
Cocoa has maintained record-high prices for over a year and there are little signs of excess of production. Coffee is one year behind so most probable these prices will remain at least one or two years. Most importantly, I bet we will hardly see levels below $200 in coffee and $3000 in cocoa.
Even with price increases of up to three times their historical levels, demand for coffee and cocoa remains relatively inelastic. This suggests that, even if coffee prices don't increase further, there is a strong fundamental for the prices to not dump again hard.
Analyzing the 200-month moving average (a super long cycle of nearly 17 years), the last 20 years we have seen a sustained increase in prices as only 3 years in this period we have been below this average. This also served as a strong support level as prices bounced many times (nine to be precise) at this level (green circles). This trend has increased the moving average from $100 to $160, and with recent high prices, this figure will continue to rise.
This makes me predict that when the prices enter a negative spiral, they will continue finding a support in this moving average that will be above $170-$180 at the time of the next crisis and so it is probable that we won't see prices below this range ever again which makes complete sense in the macro scenario I am painting with climate change and the problem with generational shifts in farming.
I hope prices above $300-$400 remain as for now farmers didn't really benefit from these prices as they had very low production. The market has proven that consumers can pay three times higher prices. This should encourage us to maintain fair and sustainable prices, ensuring farmers receive a decent income and motivating the next generation to continue coffee and cocoa farming.
This is not just a hope, I think it is material as climate warming will be hitting stronger year after year and that can only be fought with more shade trees (which means less productivity) and a buffer of extra production and extra stocks that require the prices to remain high to incentivize farmers to produce more.
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The future of coffee prices is determined by climate, supply chain realities, and market forces. Now is the time to act and ensure that farmers are no longer the ones paying the price for our daily coffee.
He is a strong advocate for blockchain and decentralization, currently serving as CEO of EthicHub.
