Boom and Bust: Commodity Price Cycles

How global supply shocks like Brazilian frosts drive coffee and other commodity prices up and down, and how growers manage the risk.

Plantation crops are commodities whose prices can swing wildly.

The coffee example

Brazil and Vietnam produce the largest shares of world coffee.
A frost or drought in Brazil can send global prices soaring.
In 2024-25, coffee prices hit record highs after poor harvests in Brazil and Vietnam.

The cycle

High prices encourage farmers to plant more.
New plants take years to produce.
When they mature, supply surges.
Prices fall, sometimes below costs.
Farmers cut back, and the cycle repeats.

Economists sometimes call this a cobweb pattern.

Effects on growers

Good years bring windfalls.
Bad years bring debt and estate sales.

Managing risk

Diversifying crops, such as coffee with pepper.
Forward contracts with buyers.
Value addition: roasting and branding.
Government support during crises.

The bumper price

When Brazilian frost cuts supply, an Indian coffee grower sells his crop at a much higher price than expected, paying off loans. Two years later, prices fall back.

Thinking high prices will last

High prices encourage more supply, which later pushes prices down.

Key takeaways

Plantation crop prices swing with global supply shocks.
Brazil and Vietnam dominate coffee supply.
The planting lag creates boom-bust cycles.
Diversification, contracts and value addition reduce risk.