Coffee Prices To Fall From Two-Year Highs On Crop Cycle Improvement, Says CCL Products' MD

Coffee prices may soften given the increase in area under cultivation and sustained production in Brazil, Challa said.

<div class="paragraphs"><p>Coffee bean lot (Source: Unsplash)</p></div>
Coffee bean lot (Source: Unsplash)

Coffee prices will "definitely reduce" by next year as the crop cycle improves, according to CCL Products’ Srishant Challa.

Coffee prices will soften from their two-year highs by next year given the increasing area under cultivation and sustained production in Brazil, despite reductions in Vietnam and Indonesia, said Challa, managing director at CCL Products. Arabica’s September 2023 futures dropped 11.16% since the start of last week, while Robusta’s September 2023 futures declined 7.6%.

Coffee prices have more than doubled over the past two years, Challa told BQ Prime. Since the start of April, Arabica’s September futures have gained 0.8%, while Robusta’s futures have grown 54.3%, he said.

This increase in coffee prices over the past three months has occurred despite demand and supply "more or less matching," according to Challa. It was instead because commodity-linked funds took positions in coffee, he said.

"When it came to actual delivery of the physical stock, the coffee stock was not available for these funds," he said. "So the funds had to buy the coffee from the open market at a premium, which led to an increase in coffee prices." This premium purchase of coffee is the only reason for the price rally in the past two to three months, he said. 

CCL’s top line will be impacted because of price fluctuations, but the realisation per kg and Ebitda growth are expected to remain unaffected, Challa said.