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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The record-breaking rise in coffee prices shows no signs of slowing, analysts say. Some warn it could take years for one of the world's most traded commodities to recover.
Arabica coffee futures March delivery hit a new intraday high of 348.35 cents a pound on Tuesday, hitting its highest level in nearly 50 years. The contract has since given up some of its gains, but is still up a whopping 70% since the start of the year.
The last time the price of Arabica beans, the world's most popular variety, was this high was in 1977, when snow destroyed large areas of Brazilian plantations.
Known for their smooth taste and sweet aroma, Arabica beans account for between 60 and 70% of the global coffee market. They are commonly used in espressos and other barista-made coffees.
Drought and high temperatures as well as the global dependence on supplies from relatively few regions are considered to be the main reasons for the recent price increase.
Meanwhile, Robusta futures also climbed to a new record high at the end of November. Robusta beans are known for their strong and bitter taste and are typically used in instant mixes.
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 rise in the price of coffee, the second most traded commodity in terms of volume after crude oil, comes amid concerns about the 2025 harvest in Brazil, by far the world's largest producer.
“The country experienced its worst drought in 70 years in August and September, followed by heavy rains in October, raising fears that the blooming crop could fail,” Ole Hansen, head of commodities strategy at Denmark's Saxo Bank, said in a statement published research note Tuesday.
For some, poor growing weather in Brazil means it could take a long time for coffee prices to recover.
“History shows that coffee prices will only fall again once supply improves and supplies are replenished,” said David Oxley, chief climate and commodities economist at Capital Economics, in a research note published Nov. 29.
“Crucially, this is a process that could take years, not months,” Oxley said.
Coffee is “particularly vulnerable” to bad weather
As a staple drink for billions of people around the world, demand for coffee has increased in recent years due to rising consumption in China. However, production struggled to keep up.
“Like cocoa, coffee is grown in a relatively narrow tropical area, with major producers including Brazil, Vietnam, Colombia and Ethiopia,” said Saxo Bank’s Hansen.
“This concentration makes it particularly vulnerable to adverse weather conditions, particularly in Brazil and Vietnam, which together account for about 56% of global production,” he added.
The US Department of Agriculture said in its semi-annual report last month that it expects Brazil's coffee production to be 66.4 million (60 kilograms per bag) for the 2024/2025 marketing year, of which 45.4 million bags are Arabica and 21 million bags of Arabica Robusta.
The USDA said its forecast reflected a 5.8% decline from its previous forecast and attributed the decline to erratic weather conditions that negatively impacted crop development, particularly for Arabica trees.
“In Brazil, this will be the fifth consecutive arabica crop to be disappointing due to adverse weather,” Carlos Mera, head of agricultural commodities markets at Dutch lender Rabobank, told CNBC via video call.
Employees handle Robusta coffee beans before 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 appeared to be increasing risks to coffee production, Mera said it was difficult to make an accurate measurement, but there were growing concerns across the industry that extreme weather could prevent the typical growth of coffee trees.
Looking ahead, Mera said coffee prices “can certainly continue to rise” from their current record levels.
Price increases for coffee drinkers?
For coffee drinkers, analysts say it's virtually inevitable that coffee makers will have to pass the cost on to consumers to limit the impact of higher bean prices on their bottom line.
NestleThe world's largest coffee maker, which includes leading brands such as Nescafé and Nespresso, announced last month that it would further increase prices and reduce pack sizes to offset the impact of higher prices.
“Like every manufacturer, we have experienced a significant increase in the cost of coffee, which has made our products significantly more expensive to produce,” a Nestlé spokesperson told CNBC via email.
“As always, we continue to operate more efficiently and absorb increasing costs wherever possible, while maintaining the same high quality and delicious taste that consumers know and love,” they added.
Italian coffee maker Lavazza and US coffee giant Starbucks both declined to comment when contacted by CNBC.
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