A coffee cup with a printed message from Salvadoran President Nayib Bukele’s X account is pictured at Franco’s Pupusa restaurant in San Salvador on July 17, 2024.
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A record-breaking rally for coffee prices shows no sign of slowing down, analysts say, with some warning it could take years for one of the world’s most traded commodities to recover.
Arabica coffee futures with March delivery hit a fresh intraday high of 348.35 cents per pound on Tuesday, notching their highest level in nearly 50 years. The contract has since cut some of its gains but remains up a whopping 70% year-to-date.
The last time the price for arabica beans, the world’s most popular variety, traded that high was in 1977 when snow destroyed large areas of Brazilian plantations.
Renowned for their smooth taste and sweet flavor, arabica beans make up between 60% to 70% of the global coffee market. They are commonly used in espressos and other barista-made coffee.
Drought and high temperatures, alongside a global reliance on supplies from relatively few regions, are regarded as the primary drivers for the recent price rise.
Robusta futures, meanwhile, also climbed to a fresh record high in late November. Robusta beans are known for their strong and bitter flavor and are typically used in instant blends.
Coffee producer Neide Peixoto selects coffee beans at the Santo Antonio farm in Santo Antonio do Amparo, Minas Gerais, Brazil on May 15, 2024.
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The extraordinary price rally for coffee, which is considered the second-most traded commodity by volume, after crude oil, comes amid concerns over the 2025 crop in Brazil, by far the world’s largest producer.
“The country experienced its worst drought in 70 years during August and September, followed by heavy rains in October, raising fears that the flowering crop could fail,” Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank, said in a research note published Tuesday.
For some, the poor growing weather in Brazil means it could take a long time for coffee prices to unwind.
“History suggests that coffee prices will only ease back as and when supply improves and stocks are replenished,” David Oxley, chief climate and commodities economist at Capital Economics, said in a research note published on Nov. 29.
“Crucially, this is a process that can take years, not months,” Oxley said.
Coffee ‘particularly vulnerable’ to bad weather
A staple beverage for billions of people across the world, demand for coffee has been boosted in recent years by growing consumption in China. Production, however, has struggled to keep up.
“Like cocoa, coffee is grown in a relatively narrow tropical band, with key producers including Brazil, Vietnam, Colombia, and Ethiopia,” Saxo Bank’s Hansen said.
“This concentration makes it particularly vulnerable to adverse weather conditions, especially in Brazil and Vietnam, which together account for approximately 56% of global production,” he added.
The U.S. Department of Agriculture said in its semi-annual report last month that it expects Brazil’s coffee production for the marketing year 2024/2025 to come in at 66.4 million (60 kilogram per bag) comprising of 45.4 million bags of arabica and 21 million of robusta.
The USDA said its forecast reflected a 5.8% drop from its previous projection, attributing the decrease to irregular weather patterns that negatively affected crop development, particularly for arabica trees.
“In Brazil, this will be the fifth consecutive arabica harvest that is disappointing because of adverse weather,” Carlos Mera, head of agricultural commodities markets at Dutch lender Rabobank, told CNBC via video call.
Employees handle robusta coffee beans ahead of the roasting process at the Tran-Q Co. coffee factory in Dong Nai province, Vietnam, on Tuesday, May. 28, 2024.
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Asked whether the climate crisis appears to be amplifying the risks for coffee production, Mera said it was difficult to measure accurately, but there are growing concerns across the industry that extreme weather could prevent typical growth in coffee trees.
Looking ahead, Mera said coffee prices “can certainly go even higher” from their current record levels.
Price increases for coffee drinkers?
For coffee drinkers, analysts say it is practically inevitable that coffee makers will need to pass on the costs to consumers in order to limit the impact of higher bean prices on their bottom line.
Nestlé, the world’s biggest coffee maker, which owns leading brands including Nescafé and Nespresso, said last month that it would continue raising prices and making packs smaller to offset the impact of higher prices.
“Like every manufacturer, we have seen significant increases in the cost of coffee, making it much more expensive to manufacture our products,” a Nestlé spokesperson told CNBC via email.
“As always, we continue to be more efficient and absorb increasing costs where possible whilst maintaining the same high quality and delicious taste that consumers know and love,” they added.
Italian coffee maker Lavazza and U.S. coffee giant Starbucks both declined to comment when contacted by CNBC.