Why coffee and oat prices are rising faster than oil’s

Severe frosts hit coffee crops in Brazil.
Severe frosts hit coffee crops in Brazil.
Image: REUTERS/Roosevelt Cassio
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Food prices globally have seen large hikes this year, making oats and coffee futures the fastest-growing commodities this year.

The relative year-to-date performance for oat futures increased 87%, and for coffee, 81%, as of Dec. 22, according to Finviz, a site that displays financial data. They outpaced oil and natural gas, the markets for which are still recovering from covid-19 restrictions.

Agricultural products are not typically the largest moving commodities, but particular events can have a huge effect, says Tom Brady, the executive director at JPMorgan Center for Commodities at University of Colorado Denver Business School.

Weather conditions hit crops hard

Coffee and oats are different kinds of crops, with the former grown in tropical climates, and the latter in northern environments. But they both faced severe weather conditions in the past year, and that often drives up the price increases for food commodities, according to Chad Hart, a professor of economics and crop markets specialist at Iowa State University.

The spike in coffee prices stems from droughts followed by severe frosts in Brazil, which accounts for one-third of all the coffee produced globally. Producers harvested nearly 40% less arabica coffee, the most consumed coffee globally, than last year, according to Conab, a crop forecasting agency, in September. Meanwhile, very wet conditions affected crops in Colombia, the second-largest supplier of arabica. Supply chain challenges, like port congestions or lack of workers, also limit what’s being shipped around the world, and rising energy costs, which affect the price of fertilizers, also contribute to rising coffee prices. Plus, it takes a few years to grow the trees that produce coffee, according to David Ortega, an associate professor at the Michigan State University who focuses on agribusiness.

Oats, on the other hand, faced droughts throughout the western part of the US that began in 2020. Farmers planted less of the grain this year and harvested a lot less, resulting in a 40% reduction this year and pushing up prices, says Hart.

The global demand for oats, which is largely used for feeding livestock, is also up. As more wealth is being generated in emerging economies, changing diets are driving up demand for more meat-based diets, says Brady. “So it’s really those supply and demand fundamentals as well as geopolitics” which are driving up commodity prices, he says.

So when will prices show up in the coffee shops and stores?

The increase in futures prices mean our coffee and cereal—or oat milk lattes—are likely going to be more expensive in the future.

Prices are perhaps already starting to be reflected on the consumer end. The price of cereals and bakery products is up 4.6% year-over-year, according to US Department of Agriculture data. Coffee prices in the US rose 7% in the past year, according to the US Bureau of Labor Statistics.

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It may take some time for higher prices to fully show up, as coffee is a storable commodity, says Ortega. Starbucks, for instance, said in an earnings call with investors in July that it bought coffee 12 to 18 months in advance. Retailers are also determining how much and when to pass prices on to consumers.

Coffee shops will have to factor not just the cost of coffee but other costs such as labor and other supply chain shortages, says Ortega. “It’s unusual to see these prices rising,” he says. “The effects of the pandemic, we see these in some of [commodity] prices, but a lot of that is going to be captured at the consumer end.”