Coffee prices look to remain volatile through the end of 2024 due to bad weather, a shipping crunch, and tighter environmental regulations, according to analysts and industry players.
Some expect relief next year, but climate change and other factors could set the stage for higher prices in the longer term.
Coffee prices have been soaring in recent months, with London futures for robusta beans reaching a historic high in July. Robusta continues to trade above USD 4,000 per ton, while New York futures for arabica beans are running above USD 2 per pound this month.
Previously, “We thought USD 2,000 was high enough” for robusta, said Kosuke Nakamura, an import manager at Japan’s UCC Ueshima Coffee. “It is at a level that was unthinkable one or two years ago.”
The high prices reflect a series of factors. Coffee production in Vietnam—the world’s second-biggest producer—was adversely affected by El Nino last year.
The Vietnamese output was “not a huge disappointment,” only falling below expectations by about 5%, said Carlos Mera, head of agricultural commodity market research at Rabobank. But it followed low harvests in Brazil in the previous years, leading to low stocks.
Shipping delays have added another factor of uncertainty. Shipping issues have become common due to route changes over fears of attacks in the Red Sea amid war in the Middle East.
For European buyers, there are also uncertainties about how to comply with the European Union Deforestation Regulation (EUDR), which aims to ensure that products have not contributed to deforestation or forest degradation. One way for companies to respond is to secure enough supply before its implementation at the end of this year. “There is a big need to accumulate stocks now,” Mera said.
All of these factors have contributed to expensive coffee. “We expect prices to remain volatile in 2024,” Mera said, before coming down in 2025 due to sound harvests in Brazil.
“You will see a more news-sensitive price than you would usually” because of the tightness of the market, said Charles Hart, senior commodities analyst at BMI. Hart said a forecast of the La Nina weather phenomenon toward the Vietnamese harvesting season later in the year could lead to more rainfall following an El Nino-induced drought and play as a “positive sign for the market.”
Looking ahead, some of the distortion in the current market should eventually correct itself, said Taisuke Horie, a coffee trader at the Japanese company Marubeni. While prices are currently high, the US Department of Agriculture estimates there will be a production surplus for the current coffee marketing year.
“Demand is concentrated on a particular cheap bean … not directed towards expensive ones,” Horie said. Some large buyers have shifted to robusta coffee, which is usually cheaper than arabica, since 2021, when Brazilian supply was badly affected by frost and overall prices soared during the pandemic. Despite a sound arabica harvest in Brazil this year, buyers have not completely shifted back to arabica, particularly for high-quality wet-processed beans, he said.
This resulted in robusta prices higher than Brazilian arabica in some cases. While arabica prices traditionally determined coffee market prices, the scramble for cheaper beans now means “there are times when robusta is leading” the price movements, Horie said.
While prices may eventually moderate from the current high, structural factors are likely to keep coffee more expensive than it used to be.
One is climate change, which “represents a systemic risk to the coffee sector that will become more acute over the next decade,” said BMI’s Hart. More extreme weather events could “serve to increase interseasonal variation in world coffee production and, thus, see price volatility increase.”
The impact is already being felt in Vietnam’s Central Highlands, where the coffee cherries grew in all different sizes this season.
Uyen Le, a technical specialist at Bosgaurus Coffee Roasters, attributed the size variation to the patchy rainfall. This year has seen less rain coming less often, leaving Vietnam’s coffee plants to produce big seeds in some places and small ones in others.
Unpredictable rain is just one headache for farmers, who must decide when to harvest and how to sort the different beans. With global temperatures rising, their yields are falling, and the insects that come with hotter weather force them to spray pesticide more often, according to Le.
“It will make the price of the coffee cherry go superhigh,” she said in an interview. “That’s what I’m afraid for.”
According to Christian Bunn, a scientist at the International Center for Tropical Agriculture, robusta coffee production is affected largely by humidity and precipitation levels, while arabica production is more dependent on temperature changes.
Climate change could lead to “reduced quality, more price variability and slow growth in quantity,” Bunn said. While breeding is important for coffee production to be stress-tolerant, it takes years, and “there is a risk that we are losing this race against climate change,” he said.
Weather conditions do not only affect the crops, but also the farmers. Ensuring quality is labor-intensive work, from planting shade trees to picking the best beans. With prices fluctuating and income unreliable, “it may be more attractive to do very little management … [and have] the rest of your labor invested into something else,” such as growing avocados or construction work, Bunn said.
Alternatively, some farmers are switching to high-end specialty coffee.
According to Le, a consultant for growers, more farmers with factories are keen to join the specialty market. “They ask me many questions: how to join it, how to taste, where they can go to study it.”
These practices—moving up the value chain and shifting to eco-friendly cultivation—make her more optimistic about the long term.
“The climate still changes,” she said, “but the people are changing, too.”
Elsewhere in Asia, Indonesia is likely to remain humid and relatively suitable for coffee production in the long term, Bunn said.
“The weather issue is only in Brazil and Vietnam; Indonesia has no problem at all. Now our robusta farmers really enjoy the profit, because it’s the highest-ever [price] for robusta,” Irfan Anwar, chairman of the Association of Indonesian Coffee Exporters and Industries, told Nikkei Asia.
A coffee producer in the Indonesian province of Lampung, who asked that his name not be published, sees another feature of the coffee market that could keep prices high in the future—rising global demand. Despite skyrocketing prices, “the demand [is] still strong for robusta, and local roasters are always in market no matter what is the price,” he said.
Indonesian producers recently have seen increasing demand from the Middle East and Asia—especially China, India, and Pakistan—thanks to growing populations, Anwar said.
Some buyers are concerned about the impact of forest protection regulations like the EUDR. It, or similar requirements in the future, “would make expanding new farming areas socially difficult,” although production could still rise through increased efficiency such as in Brazil, Marubeni’s Horie said.
If the EUDR “is strictly introduced, I think there would not be many coffee-producing countries that can immediately comply,” Horie said. Proving that a farm has not contributed to deforestation would be difficult without data, even if the farm has not done anything to harm the forest.
Buyers typically deal with many coffee growers, and proving regulatory compliance for all of them would not be easy, Horie said. This means that strict regulatory hurdles could limit the sources of coffee for some buyers.
With the EU regulation, “producers would have to bear the cost [to comply] … so it would not just be the issue for the EU,” said UCC’s Nakamura. Traceability is a global trend, and in fact, the UCC group announced its commitment to ensure “zero forest destruction” by 2030.
One impact of high market prices on end products could be instant coffee made from fewer beans through more efficient extraction methods, said Horie. Another could be coffee increasingly becoming a luxury treat, “with people who cannot tolerate [higher prices] shifting away.”