Fears over coffee shortages send prices soaring to new highs

Global coffee prices are soaring as hot, dry weather in major producing countries in south-east Asia spurs fears of shortages. 

Both cheaper robusta and higher-end arabica beans have rallied sharply since the start of the year. London robusta futures, the global benchmark, hit $3,948 per tonne on Friday, a record since the contract started trading more than 16 years ago. Arabica futures in New York also rose to $2.34 a pound — the highest level since September 2022.

Italian coffee company Lavazza recently blamed falling profitability on rising coffee prices, even as it announced a 13 per cent increase in revenue last year to $3bn. “The sharp increase in the cost of the raw material” had created an “extremely complex” macroeconomic scenario for the industry, said Lavazza Group chief executive Antonio Baravalle.

The bulk of the world’s robusta beans, used in instant coffee and espresso, are grown in Vietnam. Normally the country’s rainy season is well under way by mid-April, but this year a prolonged heatwave is damaging the crop.

This has compounded existing supply constraints and sparked concerns among roasters of a global shortage, prompting a buying spree, according to Carlos Mera, head of agricultural commodities at Rabobank. “There’s not much coffee left unsold in Vietnam.”

Roasters, especially in Europe, were already seeking to build up their stocks amid supply chain worries, he said. That has been driven by attacks by Houthi militants on ships in the Red Sea, which since November have forced vessels moving between Asia and Europe to travel the much longer route around the Cape of Good Hope instead of through the Suez Canal. 

Mera added that they were also trying to build reserves ahead of a new EU law banning coffee beans grown on deforested land, which comes into force in December this year. After this cut-off point all roasters selling into the bloc will have to provide geolocation data to prove the origins of their imported beans. 

Supply problems in robusta have pushed up prices of arabica, because roasters often blend the two bean varieties, said Jonathan Haines, senior research analyst at commodities data and research group Gro-Intelligence.

Adverse weather in Brazil, the world’s largest producer of the premium bean, has also been a driver of the rise in arabica prices, according to Ole Hansen, head of commodity strategy at Saxo. There, heavy rainfall is feared to have damaged crops and crimped the size of the harvest. 

Hedge funds and other speculators have piled into bets on arabica prices rising, according to the latest data from the Commodity Futures Trading Commission. This has also pushed arabica prices higher, said Mera, adding that the extent of the rally was not justified by weather conditions in Brazil.

The rising price of coffee comes as other soft commodities surge. Cocoa futures surpassed a record $10,000 per ton at the end of last month, and are nearly four times higher than a year ago. 

This is becoming the new normal as climate change impacts crop production. “Things are just a lot more volatile,” said Haines. “The weather has gotten a lot more volatile and there’s a lot more extreme [weather] events.”