The Impact of Exchange Rates on Coffee Supply and Demand

For the average cup of Joe consumer, the intricacies of the global market might see distant. Yet, there is a factor influencing the Supply and Demand of green coffee by unseen many: The Exchange Rate. Interestingly, Brazil leads the world in coffee production, using the Brazilian Real, while Switzerland, measured revenue in US Dollars, exports more coffee than Colombia, which uses the Swiss Franc.

Supply side: The Brazilian Farmer

Consider a Brazilian coffee producer with 10,000 LBS (or 76 bags of 60 KG) of green coffee, engaging in a transaction with a roaster. Comparing market activities on March 18, 2024, and April 17, 2023, offers insights with NY coffee Futures at $188.00 per 100 pounds:

·???????? March 18, 2024: exchange rate of 5.01 Brazilian Reals per US Dollar, the transaction totals $18,000 or 90,180 Reals.

·???????? April 17, 2023: exchange rate of 4.90 Brazilian Reals per Dollar, the transaction totals $18,000 or 88,200 Reals.

Assuming unchanged farm yields and labor hour to harvest, Brazilian producers are incentivized to increase supply, benefiting from a higher Real Value for the same green coffee quality. This scenario underscores the importance of considering productions cost. ?

Demand side: Swiss roasted coffee Exporters

Swiss coffee roasters, like Nespresso, face their own set of challenges and opportunities. Exporting 10,000 capsules to the US on March 18, 2024, versus April 17, 2023, showcases this with the revenue of $0.70 US dollar per capsule:

·???????? March 18, 2024: exchange rate of 1.12 Swiss Francs per Dollar, the transaction is $7,000 or 6,250 Francs.

·???????? April 17, 2023: exchange rate of 1.16 Swiss Francs per Dollar, the transaction is $7,000 or 6,034.48 Francs

With a equal amount of green coffee and labor for roasting and packing per capsule, Swiss roasters may increase green coffee demand, earning more Swiss Francs for the same amount of capsule quantity. This prompts a discussion on marketing cost and brand differentiation.

Visualizing Exchange rate Fluctuation

To Fully grasp these dynamic, consider the below charts that illustrate this changes vividly, offerings a clearly understanding of how exchange rates play a critical role in the green coffee Trade.

The Exchange rate significantly affects the Supply and Demand of coffee, a fact not always visible to the average cup of Joe Drinker.