Global coffee prices have skyrocketed to record levels due to adverse weather conditions disrupting crops, leading to higher costs for consumers and prompting roasters to mix in more lower-cost beans. Both robusta beans, commonly used in instant coffee, and the higher-quality arabica variety have seen significant price increases in recent months. London robusta futures, the global standard, hit an all-time high of $4,971 per tonne this week, while New York arabica futures climbed to $2.49 per pound, nearing their highest levels in decades.
“Prices may not have peaked yet,” warned Steve Butler, co-founder of ChAI, a commodity price forecasting firm that utilises artificial intelligence. He noted that the price rally has attracted speculators who are likely to continue betting on further increases.
A recent cold snap in Brazil, which produces about a third of the world’s coffee—70% of which is arabica—has heightened fears of a supply shortage. This follows months of drought in Vietnam, the largest producer of robusta, pushing global supplies into their fourth consecutive year of deficit.
Rising shipping costs are also adding pressure to the market. Since November, attacks by Houthi militants in the Red Sea have forced vessels travelling between Asia and Europe to take the longer route around the Cape of Good Hope, bypassing the Suez Canal.
Roasters are feeling the pinch. Anna Manz, CFO at Nestlé, informed investors in July that "input costs from both coffee and cocoa" would strain the food giant’s profit margins for the next six months.
These increased costs are 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 15% since 2021 to €1.20 this year, according to consumer group Assoutenti.
Consumers may also notice a change in flavour. During the period of high arabica prices from mid-2021 to early 2023, when robusta supplies were plentiful, roasters began incorporating more of the cheaper bean into their blends, according to Charles Hart, senior commodities analyst at BMI. This practice drew down inventories in Vietnam and Brazil, setting the stage for the 2024 price surge.
Now, with rising costs for both types of beans, roasters are seeking to protect their shrinking profit margins by sourcing arabica from cheaper producers, mainly Brazil, and by increasing the proportion of lower-cost beans in their blends.
“Normally, the spread between New York [arabica] and London [robusta] tightens only when prices are low,” said veteran coffee analyst Judy Ganes. “But now, with prices high, roasters are incorporating more lower-grade beans, particularly from Brazil.”
Despite the price surge, the coffee market is still "not as wild" as the cocoa market was earlier this year, noted Butler. Cocoa prices soared, leading to extreme market volatility as hedge funds and other speculators scrambled to exit losing positions. While coffee hasn't seen similar swings yet, high prices could spark 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.
