I coffee prices on the international market they have risen to the level highest in the last 50 years because of the bad weather conditions in Brazil and Vietnam, forcing roasters like Nestlé to increase prices and push many consumers, oppressed by the increase in the cost of living in general, to seek cheaper brands. The increase in prices will benefit farmers with this year's harvest, but it will represent a challenge for traders, who will have to face hedging costs on the stock exchange, in the race to get hold of the beans on the market in time.
Production problems related to bad weather in Brazil and Vietnam have seen global supplies lagging demand by three years. That has left the stocks out and pushed up the benchmark prices of ICE bag at a peak of $3,36 a pound. The last time coffee traded at such a high price was in 1977, when snow had destroyed large areas of Brazilian plantations, reports Reuters. However, the shock to consumers was much greater then. Adjusting for inflation, $3,36 per pound in 1977 would be equivalent to $17,68 today.
Crops in Brazil and Vietnam suffer from thirst
But it doesn't end there. Experts predict another year of low coffee production.
Brazil, which produces almost half of the'Arabica world (premium quality beans used mainly for roasted and ground blends) has experienced one of its worst performances this year. worst droughts ever recorded. Although rains finally arrived in October, soil moisture remains low and experts say trees are producing too many leaves and too few flowers that turn into grains. In Vietnam , which produces about 40% of the beans quality Robust physique usually used to prepare instant coffee, has been hit by a serious drought earlier this year, then followed by excessive rains starting in October.
Consultancy StoneX forecasts Brazil’s Arabica coffee production to decline by 10,5% to 40 million bags next year, partly offset by higher Robusta production, reducing the country’s overall harvest by 0,5%. In Vietnam, the harvest could shrink by up to 10% by the end of September 2025, exacerbating the global shortage of Robusta varieties.
Tensions on the futures market. Atlantica and Cafebras in difficulty
Brazilian traders Atlantica and Cafebras are seeking court-supervised debt restructuring amid soaring coffee prices, crippling hedging costs and delivery delays. The court-supervised debt restructuring precedes bankruptcy if the deal is unsuccessful. Traders who buy beans from local suppliers like Atlantica and Cafebras typically take short positions on the futures market to hedge their exposure to the physical market. Fearing they will no longer be able to receive their physical coffee, many traders are closing what have become short futures positions at a loss. Closing out short positions involves buying or taking long positions in futures, which in turn drives prices up further. Higher futures prices increase the margin requirements or deposits that traders are required to pay to protect themselves from trading losses, thus creating more stress in the industry.
The roasters' headaches
Rising coffee prices are a problem for roasters. The President of the Nestlé , the largest coffee company in the world, was ousted earlier this year after the board expressed dissatisfaction with poor sales and loss of market share due to rising prices, which pushed consumers to switch to cheaper brands.
Coffee roasters tend to purchase coffee many months in advance, which means consumers will likely notice an increase in prices within 6-12 months.
Coffee roasters like Starbucks that sell primarily to coffee shops should fare better, since the global price of coffee represents only about 1,4 percent of the total price of a typical $5 cup of coffee consumed in a coffee shop, analysts say. But the same thing may not happen in Italian coffee shops.
