In the early part of the last decade, there was an overproduction of coffee. The financial market predicted the demand for coffee to decrease despite the high supply of coffee. Sources of the supply for coffee continued to increase with time worldwide. As countries industrialized and developed, their coffee consumption increased together with their economy. Some developed countries were also about to change their habits on coffee supply. This was likely to be adapted faster if the prices of coffee increased. The traders and speculators who controlled and manipulated the future coffee market determined coffee prices (Fournier, 1998)
For example, the Intercontinental Exchange while coffee producers such as Mexico have not decided on coffee prices. Increase and decrease in coffee prices also predict the laws of demand and supply in the financial market. The increase in supply for coffee drives the prices, which has limited the gains for suppliers and producers because the demand for coffee remains the same. Â While the U.S still consumes more coffee than any other country,Â market prices increased and supply increased because many farmers began to produce low quality coffee (Frank, 2004).Â
Eventually, the gourmet coffee houses produced high quality and consumer preferred coffee, the prices went high in the market. Unfortunately, this did not last long because weather effects and low market demand. For this reason, demand and supply of coffee kept changing with time, affecting the price levels. The market speculation determines the aggregate supply and demand while the market supply determines the supply and demand (Frank, 2004). Â The graph below shows low productivity in the market in the last decade.
The movements along the curves and shifts are because of the change in supply and demand, which affect the prices. This is an example of aggregate supply and demand, which came from the market sales and was different because of the poor quality production that caused low demand. The graph indicates that in 1992-1994, coffee production was high and caused prices to go high because of the high demand reducing production quality. For this reason, demand went down until gourmet coffee house produced high quality coffee. This caused high demand, which influenced supply and prices to go higher. With many production companies, the demand and supply keep changing because of the market competition in terms of coffee quality (Alford, 2005).
Likewise, hurricanes affect fish prices because the hurricane affects the environment at which the fish is produces. Computer prices went higher with microchips production because they were more efficient and fast. On the other hand, polyester suits went higher in prices when producers upgrade raw materials used and domestic cheese reduced in price when imported cheese prices went higher because of availability. This means that for the economy to stabilize in the face of supply and demand challenges, a country needs to make foreign investments that will boost their economy. For example, foreign investors bring in foreign technologies, techniques and knowledge that they transfer to local businesses. This is through foreign equity and developing domestic owned plants (Alford, 2005).
In conclusion, coffee prices are alarming to investors and consumers in the financial market because of the rise and drop in supply and demand . With market speculations regarding coffee production, consumers and investors can decide toÂ reach a wider market through identifying potential coffee producersÂ who can maintain high quality production. As for the other variables influencing the production such as hurricanes,Â storms and change of products used, producers can develop alternative strategies for only short term impacts. Significantly, changes in coffee demand and supply will however affect the price of coffee in the future.