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Fertilizers and China's reopening plan's effect on Coffee

During the last weeks, Chinas leader Xi Jinping has decided to lift strict covid restrictions. Unlike the previous European cases where restrictions was lifted gradually, they have been removed in a rather swift manner. Following this reopening of the Chinese society, it is speculated that certain commodities associated with socializing, such as sugar and coffee, will experience an increase in demand. In the past 14 years, China’s overall coffee consumption has increased more than 1000%. It is important to note that the people of China have been able to drink coffee at home, however the reopening of Chinese society allows visits to coffee shops which might drive further growth of coffee consumption. "World Coffee Portal" reports that the Chinese coffee shop "Cotti Coffee" has opened 1300 stores in the past five months, indicating that the coffee market is still growing. With its high population this can result in a spike of prices if the supply struggles to keep up. However, coffee prices have not drastically increased, and the market is yet to respond. Is this due to a lower quantitative demand than expected? 

Source: Indexmundi (2023)

This might not be the case, one of the biggest cost drivers of coffee production is the application of nitrogen-rich fertilizers such as Anhydrous ammonia. Since the the middle of 2021, coffee producing farmers hva been challenged with a drastic increase in the price of fertilizing agents. This in turn caused the biggest spike in coffee prices since 2011. And what determines the price of ammonia? The two strongest correlation to the price of fertilizers are the natural gas and corn prices. And ever since the Russian invasion of Ukraine in 2021, gas prices skyrocketed. It seems that now the price of natural gas have stabilized and returned back to normal levels with 3 USD/MMBtu. Natural gas prices peaked in September at 9 USD/MMBtu. 

So what will be the leading impact on coffee price; China's covid restriction lift with increased demand, or the stabilizing price of ammonia leading to higher output and crop yields?


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