Coffee prices hit record high after bad weather
Food giants are set to pass on price increases to coffee drinkers. (Pexels: Jack Atkinson)
In short:
The price of coffee beans has soared to its highest level since 1977 due to bad weather in Brazil and Vietnam.
Global coffee supplies have been lagging behind demand for three years now.
What's next?
Roasters are preparing to pass on the price increases to coffee drinkers, who are likely to feel the pinch in six to 12 months.
Global coffee bean prices have soared to their highest level in nearly half a century due to bad weather in major coffee growing regions.
Food giants like Nestle are now set to pass on price increases to coffee drinkers, with companies preparing to negotiate their coffee contracts early next year.
Brazil, the world's largest coffee producer, faced a record-breaking drought this year, which has raised significant concerns for incoming crops amid already tight supplies.
A Rabobank analyst says farmers are selling less coffee beans than what is needed to meet demand. (Reuters: Roosevelt Cassio)
Meanwhile, in Vietnam, which produces some 40 per cent of the robusta beans typically used to make instant coffee, a severe drought earlier this year was followed by higher than usual rains since October.
Spiking prices will benefit farmers with this year's crop, but challenge traders who face crippling hedging costs on exchanges and a scramble to receive the beans they pre-bought.
Production problems linked to bad weather in Brazil and Vietnam have seen global supplies lagging demand for three years.
On Wednesday, the price for arabica coffee, the world's most popular variety, hit its highest level in nearly 50 years, with a pound of beans (453.6 grams) listed in New York for US$3.20 ($5.02).
The all-time high was US$3.38 ($5.30) for a pound of arabica beans in 1977 due to snow destroying swathes of Brazil's plantations.
Meanwhile, analysts are predicting yet another year of lacklustre coffee output.
Guilherme Morya, a senior analyst at Rabobank, said farmers were selling less than what was needed to meet demand.
This is despite "significant rains" in Brazil leading to an "excellent flowering" of coffee crops, he said.
John Plassard, a senior asset specialist at Mirabaud group, said disruptions to shipping in the Red Sea, potential US tariffs and future EU regulation on deforestation, were also having an impact on prices.
"It is clearer and clearer that this [supply chain] is going to have a significant impact on the consumer," he said.
When will coffee drinkers feel the pinch?
Roasters tend to buy their coffee beans many months in advance, which means coffee drinkers will likely feel the price spike in six to 12 months.
However, consumers who drink out won't feel the pinch of today's rising prices as much.
According to research collated by Pablo & Rusty's Coffee Roasters in 2024, this is the breakdown of costs that go into a small takeaway flat white. (ABC News: Lindsay Dunbar)
That's because roasters like Starbucks that sell mostly to cafes should fare better as the global coffee price accounts for a smaller percentage of the total price of a typical $US5 ($7) cup of coffee in a cafe.
The boss of Nestle, the world's biggest coffee firm, was ousted earlier this year after the board grew unhappy about weak sales and a loss of market share due to price rises, which prompted consumers to switch to cheaper brands.
Meanwhile, the Swiss Group announced this month that it would increase prices and reduce the size of its coffee bags to protect margins.
ABC/wires