Global coffee prices have soared to unprecedented levels due to severe weather disruptions affecting key growing regions, resulting in higher costs for consumers and forcing coffee roasters to blend in more cost-effective beans. Both robusta, typically used in instant coffee, and the more premium arabica beans have experienced sharp price hikes in recent months. London robusta futures, the global benchmark, reached an all-time high of $4,971 per tonne this week, while New York arabica futures climbed to $2.49 per pound, approaching their highest point in decades.
“Prices may not have reached their peak,” cautioned Steve Butler, co-founder of ChAI, a commodity price forecasting firm that employs artificial intelligence. He noted that the ongoing price rally has attracted speculators who are likely to continue driving prices higher.
A recent cold spell in Brazil, which accounts for approximately one-third of the world’s coffee production—70% of which is arabica—has exacerbated concerns over a supply shortage. This follows a prolonged drought in Vietnam, the largest robusta producer, pushing global supplies into their fourth consecutive year of deficit.
Adding to the pressure are rising shipping costs. Since November, attacks by Houthi militants in the Red Sea have forced vessels traveling between Asia and Europe to reroute around the Cape of Good Hope, bypassing the Suez Canal, and increasing transportation costs.
Coffee roasters are feeling the squeeze. Nestlé’s CFO, Anna Manz, informed investors in July that “input costs from both coffee and cocoa” would impact the food giant’s profit margins over the next six months.
These higher costs are already being passed on to consumers. In Italy, the price of a morning espresso has risen, with the average cost across the country’s cities increasing by 15% since 2021, reaching €1.20 this year, according to consumer group Assoutenti.
Consumers may also detect a difference in the taste of their coffee. During the period of high arabica prices from mid-2021 to early 2023, when robusta supplies were more abundant, roasters began incorporating more of the cheaper robusta bean into their blends, noted Charles Hart, senior commodities analyst at BMI. This trend depleted inventories in Vietnam and Brazil, setting the stage for the current price surge in 2024.
Now, with the rising costs of both arabica and robusta beans, roasters are striving to protect their shrinking profit margins by sourcing arabica from more affordable producers, particularly Brazil, and by increasing the proportion of lower-cost beans in their blends.
“Typically, the spread between New York [arabica] and London [robusta] narrows only when prices are low,” explained veteran coffee analyst Judy Ganes. “But now, with prices elevated, roasters are incorporating more lower-grade beans, especially from Brazil.”
Despite the dramatic rise in prices, the coffee market has not yet reached the levels of volatility seen earlier this year in the cocoa market, noted Butler. Cocoa prices experienced extreme swings, leading to significant market turbulence as hedge funds and other speculators scrambled to exit losing positions. While coffee hasn’t experienced such wild fluctuations yet, the current high prices could ignite a “battle” between traders who took short positions during a market dip in late June or early July and those betting on continued price increases, Butler added.