The coffee commodity market has been on a roller-coaster ride for almost a full year, with some of the biggest peaks and loops over the past couple of months. It’s a complex, layered and multi-faceted situation, so we’ve tried here to cover the basics of what has caused the extreme volatility in the market that has driven the industry to where it is today:
Arabica coffee futures surpassed $4.30 per pound in February, almost a full dollar higher than we have ever seen the coffee commodity market. It has since cooled, however, the price as I write this, while 60 cents of the highs, is still above any previous ‘record’ prices we have ever seen in the history of coffee as a commodity. This unprecedented rise is expected to impact consumers, with higher coffee prices anticipated in supermarkets and coffee shops in the near future.
There is a number of key factors that have come together to create the current market conditions”
Ø Bad Weather in Brazil & Vietnam (the world’s biggest coffee producers)
§ Brazil, the largest producer of Arabica, has faced extreme drought conditions, while Vietnam suffered a tragic typhoon last year, followed by an extended dry period.
§ The severe drought in Brazil hit during a crucial growing period, followed by excessive rains, damaging crops, reducing yield and shrinking bean sizes. This is the 3rd year in a row of sub-optimal growing conditions, which has lead to a global supply crunch.
§ With lower supply, prices naturally go up.
Ø Increased Trading Costs on ICE (Intercontinental Exchange)
§ The ICE, where coffee futures are traded, raised the margin requirements for coffee contracts by 10% this year.
§ This made it more expensive for traders to hold positions, forcing many to buy back contracts, driving prices even higher.
Ø Supply Chain Concerns
§ Logistics challenges have lingered ever since the pandemic, including container shortages in Brazil that have hampered the movement of coffee.
§ Additionally, the situation in the Red Sea has impeded shipments from East Africa and Asia, and added to supply tensions in Europe that have rippled across the whole world.
Ø European Union (EU) Deforestation Laws
§ A new EU law restricting imports of coffee linked to deforestation is making it harder for producers to find export markets, and worse, forcing some to pull up their coffee trees entirely in favour of easier-to-sell cash crops, making an already tight supply even tighter.
§ While no one is rooting for deforestation, creating a more challenging regulatory market for farmers who don’t necessarily have the tools to manage and navigate foreign laws has the potential to further push the next generations of coffee producers to stay on their family farms.
Ø Currency & Speculation Factors
§ Hedge funds and investors, seeing all these supply risks, have poured money into coffee futures, further pushing prices up. The funds have up to $7 Billion dollars invested in the coffee market as a money-maker, without the intention of ever taking delivery of that coffee, effectively manipulating the market for their own gains, while the commercial trade sits on the sidelines powerless.
§ The Brazilian real has strengthened against the US dollar, making Brazilian coffee more expensive for global buyers.
Ø Financing Costs
· Interest rates have come down from the post-pandemic highs, but are still considerably higher than pre-pandemic rates, adding to costs.
· 2x+ higher coffee prices make the real dollar amount required to finance coffee stocks and the intermediaries (importers/exporters) are being pushed to their limits. That, along with margin calls as the market goes up and up, is forcing the intermediaries to re-think their business models and build in higher costs to roasters to limit their risk.
· In the current supply crunch, buying forward coffee requires a “risk premium” to be paid due to concerns of, among other things, farmers defaulting on contracts if they can find buyers willing to pay more. Importers are adding the interest/carrying costs and risk premium into the differentials we pay to secure physical coffee.
For context, in 2023, the coffee market opened at $1.66, got as low as $1.45, briefly reached $2.05 and closed the year at $1.96. Below is a chart of coffee prices over the past year or so:
|
Month |
Price (USD/lb) |
|
Jan-24 |
$1.94 |
|
Feb-24 |
$2.03 |
|
Mar-24 |
$2.10 |
|
Apr-24 |
$2.15 |
|
May-24 |
$2.20 |
|
Jun-24 |
$2.30 |
|
Jul-24 |
$2.40 |
|
Aug-24 |
$2.50 |
|
Sep-24 |
$2.78 |
|
Oct-24 |
$2.77 |
|
Nov-24 |
$3.05 |
|
Dec-24 |
$3.43 |
|
Jan-25 |
$3.54 |
|
Feb-25 (mid month) |
$4.33 |
|
Feb-25 (end of month) |
$3.72 |
Additionally, here are articles from significant media sources that have been published recently, discussing the market situation and the impact it will have on consumers.
https://globalnews.ca/news/10989487/coffee-prices-trump-tariff-threats/
https://www.nytimes.com/2024/12/28/business/coffee-prices-climate-change.html
https://intelligence.coffee/2025/02/high-coffee-prices-and-cash-flow/
https://www.cbc.ca/news/canada/calgary/coffee-price-canadian-dollar-1.7450607