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Coffee roasters and local coffee shops get their beans from farms and plantations around the world. Before they are heated or roasted, they are known as green coffee beans. These beans represent a widely-used commodity throughout the world, and are often bought or traded just like sugar, oil, or metals. Like other commodities, green coffee prices are largely determined by supply and demand for these beans. Prices increase when supply is threatened, or if demand goes up, and prices go down due to excess supply or lack of demand.
World supply has a tremendous impact on green coffee prices. Coffee beans are generally grown in very specific climate zones, which provide the right temperature, sun exposure, and soil conditions for these beans to thrive. Unfortunately, many coffee-growing regions are also threatened by political instability and unrest. These types of political conditions can make it difficult to grow or trade beans, which can negatively impact world supplies. Some countries may also impose trade restrictions that could further influence supply.
Weather and disease can also impact green coffee prices. Plant diseases, pests, and bad weather can lead to a poor harvest. Global warming, which contributes to world temperature changes and extreme weather conditions, may also interfere with coffee harvests. Growers may have to abandon their fields and find new sites more conducive to growing as temperature or weather changes within a region. Anytime supply of these beans is impacted, the prices of green coffee could also be affected.
The demand for coffee throughout the world also has a significant impact on green coffee prices. In many areas, coffee demand is fairly inelastic, as there are few substitutes. As more people demand coffee as part of their daily lifestyle, green coffee will tend to increase in price over time. This problem may be exacerbated as demand for coffee increases in countries like Brazil or China, where people have traditionally not maintained a strong demand for coffee. The trend towards coffee shops and coffee bars in many parts of the world has also led to increased demand for green beans.
Outside of supply and demand, prices can also be impacted by speculative trading on the financial markets. If investors buy large quantities of coffee commodities shares, they may artificially inflate the price of coffee. These inflated prices may remain even after commodities trading has restored market prices to normal levels. Even trading in futures markets for related goods, like oil, could influence green coffee prices.