What’s happening with coffee prices?

What’s happening with coffee prices?

Tom, Production Manager at Stokes Tea & Coffee

The coffee industry has had an exciting few years, to put things mildly. There’s been a lot of good; a big drive towards more sustainable farming and roasting practices, along with a push to work closer with producers at origin have both resulted in a better industry and product all round. We’re currently facing a huge number of challenges, however, and while that’s not unique to coffee, the nature of the product itself is adding some significant complications. This has resulted, as I’m sure you’ve all noticed, in a steady increase in prices for coffee in all forms, from a tin of instant through to a takeaway latte. I’ll aim here to peel back the curtain on at least some of the forces driving this, and talk a little about what we can expect moving forwards. 

Before I get properly stuck in, it’s important to understand that green coffee is a commodity that’s traded using US Dollars on the New York stock market. In fact it’s one of the most traded commodities in the world, right up there with crude oil. This means it’s subject to enormous pressure from global markets, as well as the standard supply and demand forces that underpin all our trade. Ultimately all of the other reasons I’ll talk about here eventually come back to this, so viewing them with this in mind is the best way to get a complete picture.

Global shipping and logistics

It’s not just coffee that’s suffering at the moment of course, prices on almost everything we buy are climbing, and one of the major contributing factors to this are the current challenges faced by the shipping industry. It’s an enormously complex subject, but there’s a few key points I can touch on that are major driving forces here.

It’s impossible to talk about global trade without at least mentioning Covid. The effect it had was absolutely colossal, and it’s something we’ll be feeling for a long while yet. Struggles with container and ship availability, huge supply chain disruption, and a massive drop in production alongside a huge increase in demand in specific areas, all contribute to the current problem. The Suez Canal obstruction in March 2021 added further complications and exposed significant issues with the resilience of our supply chains. While these events may have occurred years ago, the knock-on effects are still being felt.

In more recent times, the series of major conflicts that have begun in the last few years have obviously been causing enormous problems for global trade. The invasion of Ukraine, and the war between Israel and Hamas are having a huge effect, but the one I want to particularly point out is the Red Sea Crisis. From October 2023 to March 2024, Houthis rebels in Yemen attacked more than 60 vessels traversing the Red Sea, most of them commercial, and attacks continued to take place all throughout last year. This has caused a huge number of commercial vessels to reroute away from the Suez Canal and to instead traverse their way round the Cape of Good Hope, a journey that adds around 10 days of travel time. The increase in costs this causes are huge, with extra fuel and crew time on the vessels needing to be accounted for, along with causing significant disruption to the flow of shipping containers. Having these containers tied up on ships for an additional 10 days instead of being emptied and reused is stressing an already fragile system. This all slows down the export of green coffee, with extra expenses leading to eventual staffing shortages, and the lack of containers being cycled quickly enough causes harvest exports to be significantly delayed.

Climate and Weather

Coffee is a tree native to Ethiopia and South Sudan, and as such has some quite specific conditions that it needs to thrive, particularly when it comes to cultivation and harvest as a commodity crop. As such, climate change bringing with it an increase in unpredictable and unprecedented weather is causing significant supply issues, as well as a lot of uncertainty about future harvests. These issues are affecting every single coffee producing country, but there’s two I’d like to touch on here; Brazil and Vietnam. Brazil is responsible for nearly 40% of the world’s coffee production. Vietnam is the second largest producer at around 16%, however they produce almost entirely Robusta instead of Arabica (the two main species of coffee used as a crop). Anything that hits these two countries therefore results in enormous impacts on the market, and they’ve both been having a rough few years.

We’ll start with Brazil. Back in July 2021 the major producing areas of the country were hit with frost. This isn’t uncommon for that time of year, however this particular incident was extreme, with temperatures hitting -1.2 Celsius very suddenly early in the morning on July 20^th. Coffee is not a hardy plant, any frost at that temperature will kill leaves and if it’s an adolescent plant then the entire thing will die. The event followed a period of drought in the country, causing an outsized impact on already weakened plants. The loss from that one morning has been estimated at around 5 million 60kg bags of coffee, or roughly 5% of global supply that year. Coffee plants will generally take 5 years to produce anything at all from first planting, and even trees that survived will take multiple years to recover from an event like that. We’re still feeling the effects now, both on pricing and on raw supply, and there’s been further issues throughout last year. More drought in 2024 has caused significant uncertainty for both the 24/25 & 25/26 harvest, and uncertainty almost inevitably causes a rise in costs. Couple that with the shipping and logistics issues mentioned above and it begins to paint a bleak picture.

Vietnam has had very similar issues throughout 2024, with extreme heat hitting the Central Highlands coffee region between March and early May alongside the worst drought in a decade. The uncertainty this has caused has fuelled further price rises, particularly on Espresso focused coffees due to the prevalence of Robusta in those roasts. To add to the issues, many Vietnamese farmers did very well financially from the 23/24 harvest due to high prices, and a lot of them are deciding to sell slower this year under the anticipation of further rises they can benefit from. This strains the industries Robusta supply, and consequently there’s been a rise in demand for Brazilian Conilon, a Robusta variety. The price of Conilon is consequently rising due to demand increases, which drives purchasers to other origins in search of a better deal, and round and round we go. I hope you can understand why I was tempted to merely write ‘it’s complicated’ for this article.

While I’ve only touched on two countries here, these issues are being felt in every coffee producing region, and while there are some potential solutions on the horizon the issue is inherently unpredictable and so is incredibly difficult to solve.

Markets and currency

As mentioned previously, green coffee is traded as a commodity in US Dollars. When trading in foreign currencies, the exchange rates between said currencies becomes a major factor to consider. USD is currently experiencing a strong period when measured against the Euro and the Pound. What this means in functional terms is that anyone trading or purchasing green coffee in the UK or the EU will find that their money won’t go quite as far, and the cost to them per KG of coffee climbs sharply. This won’t last forever, but in the short term it’s a major contributing factor to coffee prices. With uncertain conditions across Europe, a new Government and budget in the UK and an incoming administration in the US, this particular factor will likely remain quite volatile for some time.

This volatility is another variable that is contributing in broad terms to the price rises. All of the factors I have discussed so far aren’t necessarily specific to coffee, they’re affecting almost every sector of global trade. What this leads to is a broad sense of uncertainty and volatility in the markets themselves, and that has brought in speculators. There’s the potential for huge financial gains to be made from the right trade on the right commodity, and at the moment a lot of people are looking at the green coffee market as a particularly lucrative option. This in turn raises demand, and when you couple that with a strained supply, we end up at meteoric price rises.

What’s next?

In my opinion, it’s unlikely that the green coffee market becomes stable anytime in the near future. It’ll come down (hopefully soon), but I don’t expect to see a consistent, stable price for a long time. While global trade, shipping, and the markets may stabilise, the additional variable of weather and climate makes coffee an incredibly complex thing to predict, and the likelihood is that we’ll be seeing major fluctuations for a long time. Roasters can mitigate this to an extent with good planning and efficient purchasing systems, but it’s going to remain a difficult thing to navigate.

Look out for part 2 of this blog, coming soon.