Coffee Prices Cool as Brazilian Supply Builds

Could your morning coffee be about to get cheaper? Coffee prices have been falling as more beans from Brazil become available on the global market.

Arabica coffee prices fell to a 10-week low, dropping by around 2.7% to $2.84 per pound. One important reason is an increase in the amount of Brazilian coffee reaching the market. Brazil, the world’s largest coffee producer, has almost completed its latest harvest, while traders are also expecting a good crop next year.

This gives us a great example of supply in action. Supply is the willingness and ability of producers to sell a good or service at different prices.

So, why would more coffee cause prices to fall?

When more coffee is available, buyers have more beans to choose from. Reuters reported that large shipments of Brazilian coffee are heading towards exchange warehouses and could more than double existing certified stocks.

Economists would show this as an increase in supply, shifting the supply curve to the right. If demand stays the same, the market now has more coffee than before. This causes the equilibrium price — where demand and supply meet — to fall.

It is important to remember that the lower price has not caused supply to increase. Instead, factors affecting production and the amount of coffee available have changed. This causes the whole supply curve to shift.

Of course, cheaper coffee beans do not guarantee that your favourite café will immediately cut its prices. Cafés also have other costs, including wages, rent and electricity. However, this story shows an important idea in economics: when supply increases while demand remains unchanged, the market price tends to fall.