By Coffee prices have been rising sharply and hit its highest level in 47 years on Friday on fears about supply disruptions.
Arabica coffee futures climbed to a high of 335 cents per pound on Friday, marking a rise of 75% so far this year.
“This makes coffee the second most expensive commodity among those we track this year, after cocoa,” Carsten Fritsch, commodity analyst at Commerzbank AG, said.
The sharp rise in prices have affected the global supply chain, raising costs for roasters, retailers and consumers.
In just three weeks, coffee prices have surged dramatically, creating major challenges for the supply chain,” Albert Scalla, Senior Vice President of Trading at StoneX told Coffee Intelligence.
Traders, who often hold coffee inventory and hedge against price changes using futures contracts, are now facing significant financial pressures. To maintain these ‘hedged’ positions as prices rise, they must deposit additional funds as collateral, known as ‘margin calls.’
Prices have risen so dramatically because of concerns about an acute supply crunch in the market.
Weather woes
The world’s largest coffee producer, Brazil, faced a prolonged drought and heatwave conditions, which badly affected coffee plantations in the country. This has reduced output for the coming season.
Earlier this month, StoneX estimated that coffee production in Brazil is expected to fall 0.5% to 65.6 million bags during the 2025-26 season.
Production of the Arabica coffee crop is likely to fall 10.5% to 40 million bags, according to the US agency.
Rainfall in recent weeks in Brazil has improved the flowering process.
But, concerns linger about whether the flowers will convert into cherries.
Meanwhile, Vietnam, another top coffee producer, has also faced tough weather conditions this year.
According to Finimize, Vietnam’s harvest is only 30% complete due to meticulous drying processes, which has contributed to tight supply and higher domestic prices.
“Traders anticipate this trend will continue amid ongoing harvesting and limited availability,” the UK-based company said in a report.
EU Deforestation Regulation and supply crunch
According to a Coffee Intelligence report, European roasters have been rushing to build their inventories for next year due to the uncertainty surrounding the EU Deforestation Regulation (EUDR).
The EUDR is a law that aims to prevent the import and sale of products linked to deforestation within the European Union.
The European Union accounts for nearly a third of global coffee demand, according to data from the European Commission.
The EU imported around 2.7 million tons of coffee from non-EU countries in 2023.
Businesses that do not comply with EUDR face fines of up to 4% of their coffee turnover, while some producers could face being cut off from the EU market, according to a report by Allegra World Coffee Portal.
The potential supply crunch in EU markets could be substantial due to the law, while it would also have serious ramifications on some of the world’s poorest farmers.
According to the Financial Times, US roasters have also come to the global coffee market to make sure that they are not priced out.
Additionally, reports claimed that coffee producers in Brazil are holding back forward sales for the coming crop in anticipation of higher prices, Fritsch said.
“Two Brazilian coffee traders are said to have run into cash flow difficulties due to the price increase and the delivery failures, which has led to additional nervousness,” he added.
Shortage of Robusta coffee
In addition, shortage in the competing Robusta coffee variety, has also led to a sharp spike in prices.
In September, prices of the variety had hit a 50-year high, which was again surpassed last week.
Concerns about Vietnam’s harvest are fuelling the current rally in prices.
“There are concerns that the harvest in Vietnam, the most important producer country of Robusta which began in October, could be smaller due to the drought in the previous months and heavy rainfall at the start of the harvest,” according to Commerzbank.
Therefore, the German bank argues that substitution from Arabica to Robusta coffee is only possible to a limited extent for the upcoming season.
Commerzbank’s Fritsch said the price ratio between the two varieties have narrowed significantly, which makes it difficult for substitution.
Fritsch further noted:
However, the fact that coffee stocks on the ICE (Intercontinental Exchange) have risen to their highest level since June 2022 and have more than tripled since the beginning of the year does not fit in with the supply shortage.
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