It is no secret that the price of coffee has risen considerably since the start of the year. In fact, spikes in retail prices are not all that unusual over the long-term. The fact is that coffee is affected by a number of different factors that cause price fluctuations on a regular basis.

Here at Galaxie Coffee, we want our customers to understand how coffee is priced. We believe that understanding what goes in the coffee prices will help alleviate some of the anxiety customers experience when prices rise. With that said, here is what you need to know about rising coffee prices:

Coffee Production

The single biggest factor determining the price of coffee is supply versus demand. As with anything else, if supply is reduced while demand remains constant or increases, prices go up. That is economics 101. Unfortunately, the two most recent spikes that occurred this past November and January are directly related to lost production.

Brazil is the single largest coffee producer in the world, accounting for roughly 40% of the commercial market. When things go well in Brazil, the coffee market is stable. The opposite is also true. Unfortunately, some parts of Brazil experienced their hottest weather on record in January. What’s more, the two areas responsible for the majority of Brazil’s coffee production have been hard hit by a sustained drought and unseasonably warm conditions.

Some experts say that as much as 30% of this year’s crop was lost due to the weather conditions. Such a steep drop affects prices in both the short and long terms.

Coffee Pricing

Coffee is considered a commodity on the open market, meaning it is sold by way of contracts that can be secured up to 12 months in advance. The nature of these contracts means that buyers must speculate on what they believe the price of coffee will be at the time the contract is fulfilled. Any change in supply has a definite impact on the price.

Practically speaking, contracts that were secured in late 2012 or 2013 could have been negatively impacted by the reduced production out of Brazil earlier this year. Until production resumes at normal levels, future pricing will also be affected. That is the nature of commodity exchange regardless of the particular product you are talking about.

Another part of coffee pricing is directly related to the costs of bringing it to market. For example, one of our biggest expenses at Galaxie is the fuel required to run our trucks. When gas prices surge, we feel the impact.  All the way up and down the production line there are costs built into the price the consumer pays at the market.

Despite recent price hikes for coffee, America’s most loved hot beverage continues to be one of the least expensive beverages per fluid ounce. It is our pleasure at Galaxie Coffee to provide our customers with some of the best coffees in the New York area.