Information from El Salvador’s President Nayib Bukele’s X account is printed on a coffee cup photographed at Franco’s Pupusa restaurant in San Salvador on July 17, 2024.
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Analysts say record gains in coffee prices show no signs of slowing, with some warning it could take years for one of the world’s most traded commodities to recover.
Arabica Coffee Futures On Tuesday, crude oil prices for March delivery hit an intraday high of 348.35 cents a pound, the highest level in nearly 50 years. The contract’s gains have since eased, but are still up 70% year to date.
The last time prices for the world’s most popular variety of Arabica beans reached such high levels was in 1977, when heavy snows destroyed large tracts of plantations in Brazil.
Arabica beans are known for their smooth texture and sweet flavor cosmetic Accounting for 60% to 70% of the global coffee market. They are commonly used for espresso and other barista-made coffees.
Drought and heat, along with global reliance on supplies from relatively few areas, are cited as key drivers of recent price increases.
Meanwhile, robusta futures also climbed to new record highs in late November. Robusta beans are known for their strong, bitter flavor and are often used in instant mixes.
Coffee producer Neide Peixoto selects coffee beans at the San Antonio farm in San Antonio do Amparo, Minas Gerais state, Brazil, on May 15, 2024.
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Prices for coffee, considered the second most traded commodity after crude oil, surged on worries about the 2025 harvest in Brazil, by far the world’s largest producer.
Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank, said in a research report: “In August and September, the country experienced its worst drought in 70 years, followed by heavy rains in October, raising concerns about possible failure of flowering crops. worries.
For some, Brazil’s poor growing weather means it could take a long time for coffee prices to come back down.
David Oxley, chief climate and commodities economist at Capital Economics, said in a research note released on November 29: “History shows that coffee prices will only fall back when supply improves and stocks are replenished.”
“Crucially, this process is likely to take years rather than months,” Oxley said.
Coffee ‘particularly vulnerable’ to bad weather
Coffee is a staple beverage for billions of people around the world, and demand for coffee has grown in recent years China’s consumption continues to grow. However, production has struggled to keep up.
“Like cocoa, coffee is grown in a relatively narrow tropical region, with major 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.
U.S. Department of Agriculture explain In its semi-annual report last month, Brazil expected coffee production in the 2024/2025 marketing year to reach 66.4 million bags (60 kg each), including 45.4 million bags of Arabica coffee and 21 million bags of Robusta coffee.
The USDA said its forecast fell 5.8% from its previous forecast due to irregular weather patterns that negatively impacted crop growth, particularly Arabica coffee trees.
“In Brazil, this will be the fifth consecutive Arabica coffee harvest that has been disappointing due to bad weather,” Carlos Mera, head of agricultural markets at Rabobank, told CNBC via video call.
Employees at the Tran-Q Co. coffee factory in Dong Nai province, Vietnam, handle robusta coffee beans before the roasting process on Tuesday, May. 28, 2024.
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Asked whether the climate crisis seemed to amplify the risks to coffee production, Mera said it was difficult to measure accurately, but there was growing concern throughout the industry that extreme weather could hamper the normal growth of coffee trees.
Looking ahead, Mera said coffee prices “will definitely be higher than the current record levels.”
Price hikes for coffee lovers?
Analysts say it is virtually inevitable for coffee drinkers that coffee producers will need to pass on costs to consumers to limit the impact of higher bean prices on their profits.
nestleThe world’s largest coffee manufacturer, with leading brands such as Nescafé and Nespresso, explain Last month, it continued to raise prices and shrink packaging to offset the price increases.
“Like all manufacturers, we have seen significant increases in the cost of coffee, making our products more expensive to produce,” a Nestlé spokesperson told CNBC via email.
They added: “As always, we will continue to improve efficiencies and absorb increasing costs where possible while maintaining the high quality and delicious taste that consumers know and love.”
Italian coffee maker Lavazza and U.S. coffee giant Starbucks both declined to comment when interviewed by CNBC.
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