The Coffee Market: current balance and prospects

How was 2022 for the coffee market, and what are the prospects for 2023, according to the experts?

January 17, 2023

hEDGEpoint Global Markets

The coffee market is of inestimable relevance not only to Brazil’s economy, but to the country’s history. Of African origin, the grain arrived in the country in 1727, in Belém, Pará, and soon became an important crop.

Since then, production has passed through regions in the Northeast, where the climate was extremely hot and didn’t favor it. Then there were attempts in Rio de Janeiro. And finally, it reached the region of São Paulo and Minas Gerais, where the country’s coffee cycle developed during the 19th and 20th centuries, giving rise to the famous ritual of coffee with milk.

Coffee bean production has become essential for the Brazilian economy, both in terms of domestic production and exportation. The world’s largest producer to date, the country shares the ranking with Vietnam, in second, and Colombia, in third. Also important producers are Indonesia, Ethiopia, India, Honduras, and Mexico, among others.

Today, coffee contributes R$42.598 billion to the Brazilian GDP and holds fourth place in the Gross Production Value (GPV) ranking of crop products, with 5.3% of total crop revenue. It’s also responsible for generating more than eight million direct and indirect jobs.

But, like all commodity markets, coffee is susceptible to various types of volatility, both due to the unpredictability of the climate and financial markets.

You can follow the survey by hEDGEpoint specialists below on the current situation of the coffee market, and the prospects for the near future.

The coffee market in 2022

Last year was full of ups and downs for the coffee market in Brazil and around the world. At the beginning of 2022, the outlook was bullish (in terms of prices): after all, there were two harvests below potential on national soil, and there were climate variations that affected production in Colombia, Vietnam, and Central America.

However, as early as February, with the start of the war between Russia and Ukraine, downward pressure on prices began. The market priced in a reduction in demand from both countries, in addition to risk aversion.

As the second half of the year arrived, the forecasts of frost that had been made for Brazil weren’t realized, and with the improvement in the weather, the market responded with a further drop in prices. In other words, optimism and the flowering of 2023/2024 brought prices down.

Between January and December of 2022, the reference prices for Arabica in New York fell by 25%, while the variation was -20% for Robusta.

What can we expect from the 2023 coffee market?

As the world’s largest coffee producer, Brazil ends up guiding the global balance. With an improvement in the production perspective in 2022/2023, and with the current optimism for 2023/2024, the expectation of a surplus clearly exists.

After two years of being held back by weather phenomena in Brazil, uncertainty regarding the development of the 2023/2024 harvest still runs high. Even with large and uniform blooms, there’s still a risk of productivity loss due to poor setting in some regions, as well as “flower abortion.”

The forecast is for rains to continue in January, contributing to the good development of national coffee production in 2023/2024. However, in the near future, there’s also the possibility of another El Niño passing through Brazil, already raising concerns for the 2024/2025 harvest.

The expectation for 2023 is a global production of 186M scs. with a global demand of 182.28M scs. in the 2023/22024 cycle, running from October 2023, to September 2024. The surplus for the cycle is expected to be 3.74M scs.

For those who work in the coffee production chain, the moment says they should wait for the most attractive prices to close good deals.

How can the coffee market allow you to hedge against risks?

 First, it’s important to remember that there are different types of risks in commodity markets (link to text about this). Even when there are good prospects for the future, it’s not possible to predict them or avoid specific events.

Weather storms, political and economic changes at the local and/or global level, and other unpredictable events, such as wars, can’t be changed. But you can choose how to best deal with them.

In such a volatile market, it’s essential to plan in order to provide more security and predictability for the future of your business.

The best option to manage risks and avoid losses in commodity markets is to rely on a partner who specializes in hedging, and has extensive knowledge of the agro market, as is the case with hEDGEpoint.

We combine the knowledge of numerous specialists in different commodities, with risk management solutions through technology and customized consulting, to always offer the best experience in futures operations.

hEDGEpoint also features the hEDGEpoint Academy, a course platform to disseminate knowledge about hedging, bringing many benefits to the agro market, and which is still being discovered by users.

Get in touch with a consultant now to learn more about how to use this instrument to favor your business.

Talk to a hEDGEpoint specialist.




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