A coffee cup with a printed message from Salvadoran President Nayib Bukele's account is pictured at Franco Puposa restaurant in San Salvador on July 17, 2024.
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Analysts say the record rise in coffee prices shows no sign of slowing, and some warn that the recovery of one of the world's most traded commodities could take years.
Arabica coffee futures With March delivery hitting a new intraday high of 348.35 cents a pound on Tuesday, marking its highest level in nearly 50 years. Since then, the contract has pared some of its gains but remains up 70% year to date.
The last time the price of Arabica beans, the most popular variety in the world, rose to this high level was in 1977 when snow destroyed large areas of Brazilian farms.
Arabica beans are known for their smooth taste and sweet flavour makeup Between 60% and 70% of the global coffee market. They are commonly used in espresso and other coffees made by baristas.
Drought and high temperatures, coupled with global dependence on supplies from relatively few regions, are the main factors behind the recent rise in prices.
Meanwhile, Robusta futures also rose to a new record high in late November. Robusta beans are known for their strong, bitter flavor and are commonly used in instant blends.
Coffee producer Neide Peixoto selects coffee beans at the Santo Antônio farm in Santo Antônio do Amparo, Minas Gerais, Brazil on May 15, 2024.
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The exceptional rise in coffee prices, which is considered the second largest commodity traded in terms of volume, after crude oil, comes amid concerns about the 2025 crop in Brazil, the largest producer in the world by a wide margin.
“The country experienced the worst drought in 70 years during August and September, followed by heavy rains in October, raising concerns that the flowering crop could fail,” Ole Hansen, head of commodity strategy at Danish Saxo Bank, said in a published research note. Tuesday.
For some, Brazil's bad weather means it could take a long time for coffee prices to fall.
“History suggests that coffee prices will only decline when supplies improve and inventories replenish,” David Oxley, chief climate and commodities economist at Capital Economics, said in a research note published on November 29.
“It is critical that this process can take years, not months,” Oxley said.
Coffee is “particularly vulnerable” to bad weather
Coffee is a staple beverage for billions of people around the world, and demand for it has increased in recent years due to… Consumption is increasing in China. However, production is struggling to keep up.
“Like cocoa, coffee is grown in a relatively narrow tropical range, with major producers including Brazil, Vietnam, Colombia and Ethiopia,” Saxo Bank's Hansen said.
“This concentration makes them particularly vulnerable to adverse weather conditions, especially in Brazil and Vietnam, which together account for about 56% of global production,” he added.
US Department of Agriculture He said In its semi-annual report last month, it forecast Brazilian coffee production for the 2024/2025 marketing year to reach 66.4 million (60 kilograms per bag) consisting of 45.4 million bags of Arabica and 21 million of Robusta.
The USDA said its forecast reflected a 5.8% decline from its previous forecast, and attributed the decline to erratic weather patterns that negatively affected crop growth, especially for Arabica trees.
“In Brazil, this will be the fifth consecutive arabica harvest and it is disappointing due to the bad weather conditions,” Carlos Mera, head of agricultural commodity markets at Dutch bank Rabobank, told CNBC via video call.
Employees handle Robusta coffee beans before roasting at Tran-Q's coffee factory in Dong Nai province, Vietnam, Tuesday, May. 28, 2024.
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He was asked if Climate crisis This appears to inflate the risks to coffee production, and Mira said it has been difficult to measure accurately, but there are growing concerns across the industry that extreme weather could prevent the typical growth of coffee trees.
Looking to the future, Mira said coffee prices “can definitely go up” from their current record levels.
Increase prices for coffee drinkers?
For coffee drinkers, analysts say it's practically inevitable that coffee makers will need to pass costs on to consumers in order to limit the impact of rising bean prices on their bottom lines.
Nestlethe world's largest coffee maker, which owns leading brands including Nescafe and Nespresso, He said Last month, it said it would continue to raise prices and reduce package sizes to offset the impact of higher prices.
“Like every manufacturer, we have seen significant increases in the cost of coffee, which has made our products much more expensive to manufacture,” a Nestlé spokesperson told CNBC via email.
“As always, we continue to operate more efficiently and absorb increased costs where possible while maintaining the same high quality and delicious taste that consumers know and love,” they added.
Italian coffee maker Lavazza and American coffee giant Starbucks Both declined to comment when contacted by CNBC.
