Unfortunately, coffee is an extremely volatile commodity, characterised by pronounced price cycles.

These cycles are usually set in motion by extreme fluctuations in the size of the Brazil crop, which is vulnerable to catastrophic environmental shocks from drought and, more commonly frost. A frost in July 1975 damaged or killed over 50% of Brazil's tree stock. Two Brazilian frosts in 1994 caused a price surge which took the ICO composite price indicator above US$2.00/lb.

By the end of 2008, an unusual amount of rainfall in Colombian producing regions created a tight market in the supply of high quality Arabicas. This has pushed the ICO Colombia Indicator beyond US$ 2.0/ lb., a level not seen since 1997. The tightness in this end of the market, coupled with growing consumption in consumer markets such as Brazil and Indonesia, has supported prices of all qualities and origins. Even Brazil has managed to support its price despite the exceptionally high production levels in the 08/09, 09/10 and 10/11 crop years.

High prices during the1994-1998 period encouraged farmers to expand coffee plantings. The subsequent increase in production has forced the market into a position of large oversupply and very low prices in the 2000-2003 period. The ICO composite indicator had crashed below US$0.45/lb. by the middle of 2002, its lowest ever level in real terms.

The volatile coffee cycle