Energy Markets · Commodities
Arabica Coffee: A Market Hiding in Plain Sight
Coffee futures are up nearly 3x from their 2021 lows. Most people noticed it in the price of their morning cup. We noticed it in the data.
The Price Story
- Arabica (KC=F) ran from ~150¢/lb in 2021 to over 420¢/lb by early 2025 — nearly a 3x move driven by compounding supply shocks.
- Annualised volatility peaked above 45% in September 2025, well above the long-run historical mean of 33.5%.
- Since late 2025, volatility has declined steadily and the GJR-GARCH(1,1) 30-day forecast points to a continued drift back toward the long-run mean.
- Our SARIMA(2,1,1)(1,1,1)[12] model, fit on 15 years of monthly data, projects a moderate price pullback through mid-2027 — with wide confidence intervals reflecting the inherent shock-sensitivity of the market.
The Structural Drivers
- Supply Inelasticity: Coffee trees take 3–4 years to bear fruit. Short-run supply simply cannot respond to price signals — a single frost in Brazil can reprice a global commodity overnight.
- Inelastic Demand: Price elasticity of demand sits between -0.2 and -0.5. People keep drinking coffee, which means demand provides little buffer when supply shocks hit.
- Climate Exposure: El Niño and La Niña cycles directly shape Brazilian and Vietnamese growing conditions. The ONI index is one of the most reliable leading indicators for supply disruption.
- Currency Dynamics: The BRL/USD rate is a critical lever. When the Brazilian real weakens, farmers receive more local currency per bag and are incentivised to sell, pressuring international prices.
The Osiria Take
- Coffee is a microcosm of everything we study at Osiria Research — commodity dynamics, monetary spillovers, climate risk, and structural supply chain fragility.
- Expect clear, grounded perspectives on the developments worth paying attention to.
* Analysis based on KC=F (ICE Arabica futures), SARIMA + GJR-GARCH modelling, 2011–2026 data