This month we look back on coffee year 2020/21 which ended on September 30. The year has seen a lot of movement throughout the industry, including seeing economies begin to recover around the world and coffee businesses reopen thanks to vaccination programs and other local pandemic management. However, the year has also seen logistical challenges destabilize the typical flow of coffee through the supply chain, while extreme weather conditions around the world and their projected impact on future coffee production has led to a sharp increase in coffee futures prices, current physical inventory prices, and significant market volatility. Read on to learn more about the year's C Market movement, statistics and numbers from the International Coffee Organization, current logistical challenges facing the industry, and what to expect from Ally Coffee in the coming year.
The World Market
During coffee year 2020/21, the coffee futures market has shown several days of unprecedented volatility, resulting in the market reaching its highest prices in nearly seven years. The year opened October 1, 2020 at a price of $1.11/lb and closed the year on September 30, 2021 nearly 75% higher at $1.94/lb.
Prices reached the FairTrade minimum price of $1.40/lb in a strong rally in late February, only to be met with downward pressure immediately and tumbling again to the $1.21/lb mark by the beginning of April. However, early April quickly saw the beginning of a new price rally, which is arguably still ongoing today. The market climbed steadily to $1.60 by late May before spiking upward beginning in mid-July. The price of coffee rocketed upward more than 32% over the course of five trading days, gaining more than 50 cents during that time. This groundswell of movement was followed quickly by downward price changes, falling as low as $1.71 by August 2. However, the market has seen steady price growth since August began, closing the coffee year finally at $1.94/lb. Prices have continued this trend throughout early October, with prices ranging from $1.90 to $2.15/lb at the time of writing.
Global Coffee Industry Statistics
Source: ICO Coffee Market Report, September 2021
- In September 2021 the ICO composite price indicator price reached 170.02 US cents/lb, a 60.6% increase from last year and the highest price since February 2012
- Futures price volatility decreased somewhat to 8.2% in the month of September
- Over the first 11 months of coffee year 2020/21 all production regions saw a decrease between 0.5–2% in Arabica production other than South America, which saw an increase of 1.9%
- Coffee exports to all destinations totaled 118.96 million 60 kg bags through the first 11 months of coffee year 2020/21 (October 2020–August 2021), this represents a 1.9% increase compared to the 116.77 million bags exported during the same period of coffee year 2019/20
- Global coffee consumption for coffee year 2020/21 is estimated at 167.26 million bags, an increase of 1.9% over the previous year
- The projection for total production for all coffee in coffee year 2020/21 is 169.64 million bags, a marginal increase of 0.4% over the previous year
- The projected total production of coffee year 2020/21 is 8.6% above the average of the last 10 coffee years. However, concerns over the supply from main origins still remain as climate-related shocks and COVID-related disruptions continue to affect trade flows in many countries
Read the ICO’s full September 2021 report here.
Coffee being dried at the Sagastume family farm in Santa Barbara, Honduras
Logistical Challenges in Coffee Year 2020/21 and Beyond
Since the introduction of the shipping container in the 1960s the world has seen exponential growth in global trade. These containers have allowed for a standardized method to pack and transport goods across ships, trains, and trucks. Consequently, companies started to rely on the "Just In Time" principle, having goods delivered just before they're needed as a method to reduce both risk and warehousing costs. This business model became possible because of the reliability of the global logistics network thanks to the use of shipping containers. Ocean vessels have reliable sailing times thanks to their powerful diesel engines and the ever-increasing port capacities and automations introduced throughout the years. Throughout recent decades the routes and timing of ocean freighters have become as reliable as your local bus schedule, giving businesses certainty regarding estimated shipping times.
In recent years however, major developments have created challenges which have upset the finely-tuned global logistics industry. The industry suffered greatly during the financial crisis of 2008, resulting in consolidation of several smaller shipping companies. Additionally, many companies moved away from owning their own vessels for shipping and focused instead on forwarding freight through the remaining vessels owned by other players. Today, a single vessel will usually carry containers from the ten main shipping companies who dominate around 85% of global trade. This has resulted in bidding wars for space on available ships, setting the stage for some confirmed shipments to be "rolled," or bumped from their place on their ship, left to wait at port for the next available departure date.
Ally Coffee Central American Green Coffee Buyer Bram De Hoog loading a shipping container with coffee in Costa Rica
The COVID-19 pandemic exacted a heavy toll on global logistics, building on the difficulties created by the 2008 financial collapse. Early in the pandemic, demand for consumer goods plummeted. Many manufacturers and retailers cancelled pending orders, disrupting the typical flow of shipping containers from port to port. Very quickly thereafter, as lockdown orders and other restrictions came into effect around the globe, demand then spiked for office chairs, electronics, and other goods. This volatility in the typical flow of goods created difficulties in ensuring that the necessary shipping containers were available where they were needed; an issue which has been compounded by port closures and slowdowns related to COVID-19 regulations. Despite these difficulties, businesses could still be certain that, with the right amount of patience, their goods would still be shipped and delivered in a timely manner.
The delicate balance that had been struck throughout the pandemic was finally toppled by the blockage of the Suez Canal, a disruption in global trade that held up nearly 10 billion dollars worth of goods each day for six days. Today, seven months after the event, we are still feeling the ripples created throughout the logistics industry. 93% of all cargo has been arriving outside of its typical schedule, a number which shows little sign of improving in the very near future given the difficulties still faced by many global ports due to the continuing COVID-19 pandemic. Ports continue to close down due to labor shortages, an issue which stretches into other logistics industry players like truck drivers and warehouse employees. Ports in Los Angeles, Yuan Tian, and Shanghai have been hit particularly hard, with Los Angeles experiencing unload times nearly 17000% longer than the historical average.
Shipping dock at Continental Terminals Charleston, South Carolina port
Beyond the immediate difficulties experienced by everyone dependent on global logistics, it's difficult to look ahead for any coming changes as shipping companies are reluctant to start negotiations for the coming year until the fourth quarter of 2021. It is no surprise that some companies have taken extreme measures. Coca-Cola has chartered coal ships to transport raw materials rather than the typical diesel engine vessels used by most carriers, while Ikea has purchased their own shipping containers and chartered their own ship to safeguard its supply network. Not all companies are capable of undertaking such substantial endeavors, and these sort of drastic measures are out of reach for the majority of companies around the world.
Impact on the Coffee Industry
As one of the world's major commodities, coffee is shipped around the globe using the shipping containers and ship routes shared by much of the world's economy. The disruptions detailed above have limited the usual access to shipping containers and vessel space that coffee exporters and importers have relied on for decades. The limited supply of and increasing demand for shipping space and containers has resulted in rising prices for coffee shipment, growing to be 4–10x higher than typical costs. It comes as no surprise that shipping companies such as Maersk are reporting unprecedented profits, including adjusting their profit forecast for 2021 from $4.3–6.3 billion at the beginning of the year to a record breaking $18–19 billion in quarter three.
The disruptions and price increases have been hard on every industry, but a commodity like coffee has been left in a particularly fraught position. The value of goods in a container of coffee is often much lower than a comparable container filled instead with consumer goods like electronics. Similarly, the heavy weight of a container filled with coffee adds to the fuel cost of shipping vessels, making it again less desirable for shipping companies to assign to their boats.
Stacks of coffee warehoused at Continental Terminals Charleston, South Carolina warehouse
Ultimately for the coffee industry this paints a challenging picture for the coming months. Shipping container shortages for coffee are still prevalent at many ports around the world as other goods and industries are prioritized. Following that initial challenge, confirming space on departing vessels has proven to be difficult as pricing fluctuates and bids for higher-value goods result in coffee containers being rolled to hope for space on the next departure. Beyond the challenge of securing space at a substantially higher price than usual, coffee containers will also see much longer wait times to be unloaded from the ship, to be transported to the warehouse, and to be unpacked at the warehouse due to labor shortages throughout the logistics industry.
Impact at Ally Coffee and Your Roastery
As an international green coffee importer and part of a global coffee holding group, we at Ally Coffee understand that this may be overwhelming for many people throughout the coffee industry. Experts estimate that the situation will continue through the end of 2022, rather than feeling a reprieve early in the year as originally projected. Nevertheless, our dedicated logistics team is working each day to mitigate the impact on our supply chains and daily business as much as possible.
During this time it is perhaps more important than ever to plan ahead for green coffee needs, fine-tune your forecasting system, and stay well-aware of your current inventory, position, and future contracted coffees. The industry is already experiencing challenges with coffee supply, as evidenced by a 27% decrease in Brazilian coffee exports in August 2021 compared to the previous year due to a lack of available shipping containers.
Ripe coffee cherries at Finca Cedral Alto in Tarrazú, Costa Rica
We encourage everyone, regardless of their business' size or location, to reach out to their Ally Coffee account manager to begin the conversation about how to prepare for the coming months. Unfortunately, no one is unaffected by this crisis, and we must continue to be adaptable and work collaboratively just as we have throughout the last several months. Ally's account managers work in close collaboration with our logistics and sourcing teams, making them your best point of contact to help you be informed and make the best decisions for your business.
Market Year 2020/2021 in review for Ally Coffee
Coffee year 2020/21 was a year of unprecedented difficulties for most everyone across the world. However, through resilience, dedication, and flexibility, we have been able to continue our work with our partners throughout the industry. The year provided chances to deepen our relationships with long-time partners, while continuing to open up opportunities for new partnerships, bringing even greater diversity to our green coffee offerings.
In the coming year we will continue in our mission to move coffee forward, even in the face of adversity. The last twelve months have allowed us to learn how to address a myriad of challenges—spanning our partners at each end of the supply chain—preparing us for the future and whatever it may hold. We're proud to carry on in our dedication to the continuous improvement of our industry, and especially in our dedication to the people who make coffee what it is each day.