Coffee Prices Soar 70%, Hitting 50-Year High

Analysts point out that the record rise in coffee prices shows no signs of slowing down. Some experts warn that as one of the most traded commodities globally, it may take years for coffee prices to recover. The price of coffee for March delivery reached a new high on Tuesday at 348.35 cents per pound, marking the highest level in nearly 50 years. Although this contract has since pulled back somewhat, it is still up 70% year-to-date.

Arabica coffee beans, the most popular coffee variety worldwide, last reached such a high price in 1977 when large plantations in Brazil were devastated by heavy snow. Arabica coffee beans are known for their smooth taste and sweetness, accounting for 60% to 70% of the global coffee market, typically used for espresso and other specialty coffee drinks.

The primary drivers of the recent price surge include drought and high temperatures, as well as global reliance on a relatively small number of supply regions. Meanwhile, robusta coffee bean futures also hit record highs at the end of November. Robusta coffee beans are known for their strong and bitter flavor, usually used for instant coffee blends.

In São Antonio do Amparo, Minas Gerais, Brazilian coffee producer Neide Peixoto picked coffee beans on May 15, 2024, at the São Antonio farm. As the second-largest traded commodity after crude oil, the unusual increase in coffee prices has raised concerns about Brazil's 2025 crop. Brazil is currently the world's largest coffee producer.

Ole Hansen, head of commodity strategy at Saxo Bank, stated in a research report released on Tuesday, "The country experienced its worst drought in 70 years in August and September, followed by heavy rains in October, raising concerns about the potential crop failure of flowering plants."

David Oxley, chief climate and commodity economist at Capital Economics, noted in a research report on November 29, "History shows that coffee prices will only decline when supply improves and inventories are replenished." He emphasized, "This process may take years, not months."

In recent years, the growth in consumption in China has driven demand for coffee, but production has struggled to keep pace. Hansen from Saxo Bank pointed out, "Like cocoa, coffee grows in relatively narrow tropical regions, with major producing countries including Brazil, Vietnam, Colombia, and Ethiopia." He added, "This concentration makes it particularly vulnerable to adverse weather conditions, especially in Brazil and Vietnam, which account for about 56% of global production."

The U.S. Department of Agriculture predicted in last month's semiannual report that Brazil's coffee production for the 2024/2025 marketing year would reach 66.4 million bags (each bag weighing 60 kg), consisting of 45.4 million bags of arabica coffee and 21 million bags of robusta coffee. The USDA stated that its forecast is down 5.8% from previous estimates due to irregular weather patterns adversely affecting crop growth, especially for arabica coffee trees.

Carlos Mela, head of agricultural markets at Rabobank, told CNBC via video call, "In Brazil, this will be the fifth consecutive disappointing arabica coffee harvest due to adverse weather."

On May 28, 2024, in Đồng Nai Province, Vietnam, employees at the Tranq coffee factory processed robusta coffee beans before roasting. When asked whether the climate crisis would increase the risks of coffee production, Mela stated it is difficult to measure accurately, but the entire industry is increasingly concerned that extreme weather could hinder the normal growth of coffee trees. Mela indicated that looking ahead, coffee prices "will definitely rise even higher from the current record levels."

Analysts believe that coffee manufacturers will almost inevitably need to pass on costs to consumers to limit the impact of rising coffee bean prices on their profits. The world's largest coffee manufacturer, Nestlé, stated last month that it would continue to raise prices and reduce packaging to offset the impact of rising costs. A spokesperson for Nestlé told CNBC via email, "Like all manufacturers, we are seeing significant increases in coffee costs, which have greatly raised the cost of producing our products." They added, "We will continue to enhance efficiency and absorb the increasing costs as much as possible while maintaining the high quality and taste that consumers know and love."

When CNBC reached out to Italian coffee manufacturer Lavazza and American coffee giant Starbucks, both declined to comment.