A Spectral Analysis of Coffee Market Oscillations

Virtually all commodity markets exhibit irregular, long-run shifts in deflated product prices. The world coffee economy has noted the existence of fairly slow but somewhat regular coffee price oscillations. Some view the cycle as naturally arising from a free coffee economy, others place the blame for structural disequilibria on the inappropriate use of control policies, generally by producers and national bodies.An examination is made of the auto- and cross-spectral structure characterizing these oscillations, and interpretation is made of their generation using a linearized commodity system model with specification and parameters derived from surveys and econometric estimates. Oscillatory characteristics of a free-market coffee economy result from a distinctive structural characteristic-the separation of producers and consumers into differing currency areas. Recent trends towards export diversification by major coffee producers would lead, with unchanged producer behavior, to even more powerful coffee cycles via smaller exchange rate responses.