Sentiments on the global coffee market have turned around completely in 2014 as severe drought in Brazil in combination with high rainfall in Indonesia are expected to result in weak harvests, thereby reducing global coffee production and stockpiles, causing a significant price increase since mid January 2014. Both countries are vital for global coffee production. Brazil accounts for about half of the world's total arabica production, while Indonesia is a significant robusta-type producer.

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Prices of coffee have surged 24 percent in 2014 as Brazil experienced the warmest January ever and the least rainfall in 20 years. Being a major arabica bean producer, Brazil's weather conditions particularly influence the arabica coffee price. The arabica coffee price has jumped 26 percent in seven trading sessions, the highest level since July 2000. Meanwhile, weather forecasts do not seem to indicate the arrival of a sufficient amount of rainfall in the remainder of February and March before the dry season kicks in in April.

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Indonesia Investments updated the profile of coffee in our commodities section. Indonesia is one of the world's top coffee producing and exporting countries and thus this beverage is an important foreign exchange earner. Starting from the 1960s, Indonesia has shown a small but stable increase in domestic production of coffee. Apart from the production of regular coffee, Indonesia is famous for certain types of specialty coffee, including  luwak coffee (kopi luwak), Toraja coffee, Aceh coffee and Mandailing coffee.

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The Consulate General of Indonesia in Guangzhou (China) said Indonesia's coffee exports to China reached USD $34.1 million in the January-September 2017 period, hence Indonesia now ranks second in terms of biggest coffee exporters to China. Vietnam ranks first, by a distance, with a coffee export value of USD $368.8 million in the same period.

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The United States Department of Agriculture (USDA) expects Indonesia's coffee exports to fall in the 2016/2017 season due to rising domestic coffee consumption in Indonesia and low productivity. In the January-May 2016 period coffee exports from Indonesia fell 33.9 percent year-on-year (y/y) to 117,000 metric tons from 177,000 metric tons in the same period one year earlier. Indonesia's main coffee export destination markets are the USA, European Union (EU), and Japan.

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Brazil has been in the spotlight as recent developments in this country influence global prices of coffee and sugar. There are currently two factors at play in Brazil, the world’s leading coffee and sugar supplier. First, ongoing drought has sharply pushed up the price of coffee. Secondly, the market is hopeful that reform-minded candidate Aécio Neves wins the Brazilian presidential election in the second voting round. This has given Brazil’s currency (real) a boost against the US dollar, and thus impacted on prices of coffee and sugar.

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