Coffee Prices Are Shattering Records

First of all, we wanted to inform you that, due to rising costs in coffee production, we will be raising the prices on some of our coffee beans. This increase is a result of various challenges, including the ongoing effects of droughts, as well as fluctuations in labor and shipping costs.

We understand that price changes can be concerning, but we want to assure you that our commitment to delivering the highest quality specialty coffee remains steadfast. By continuing to work with us, you’re supporting sustainable practices, ensuring a premium product, and contributing to the livelihoods of coffee farmers who prioritize ethical sourcing and environmentally conscious methods. We truly value your support and look forward to continuing to provide you with exceptional coffee. Thank you for your understanding and ongoing partnership.

Coffee the Commodity

By volume, coffee is the world’s 2nd most traded commodity — second only to crude oil (1) — and it’s price has been soaring for weeks, shattering records in the process. Only one other time in the last 50 years has the price per pound of coffee been over $3, and that was back in 1977 (2). However, what is not decreasing is consumer demand for the brew, which combined with supply uncertainty has created the economic climate that has this crop posting a staggering Year-over-year (YoY) comparative metric of 94.47% at the time of this writing, surpassed only by cocoa at 121.58% (3). To add more quantitative context to that value, gold and that old standby commodity crude oil presently sit at 36.12% and -1.71%, respectively. 

What Is Driving The Price Surge?

Coffee is traded on a futures market with arabica beans sold on the New York market and the robusta variety sold in London (4). In a futures market, the price of the commodity is agreed upon at one point in time with the purchase being fulfilled at a later point in time (5). In practical terms, how this materializes is that if there are strong indicators that a future supply of something will be less than what it has been, then the price to be agreed upon today for a future delivery will be higher than what it has been, and this is the foundational economic principle explaining why the price of coffee is increasing. Now, if you add rising demand to that relationship, that is how the price of coffee — or anything else traded on a futures market — explodes, as has been the observed trend with these beans since November.

To completely illustrate this point, we must look at where coffee is grown and where it is consumed. Whereas, coffee is consumed all over the world, including being somewhat synonymous with cultures and countries where it is not cultivated — Italy serving as a good example, it is only produced in a tract circumnavigating the earth between the Tropic of Cancer, 23.4° north of the equator, and the Tropic of Capricorn, a zone that has been designated the Coffee Belt (6,7,8). Although comprising approximately 10 million hectares of land, this region only accounts for roughly 0.2% of the earth’s agricultural land. Furthermore, not all countries located within this area produce coffee equally. For example, Brazil, the most prolific coffee producing country in the world, is perched at the top of the list, producing about a third of the world’s coffee. Vietnam is the world’s second largest producer overall and the country that produces the most robusta beans (9). Therefore, one needs to look no further than the recent weather in these two countries 11,000 miles apart to see clearly why the price of coffee is setting records. Brazil toiled through its worst drought in 7 decades in 2024, only to see a lot of rain at the end of the year, with the Southeast Asian country experiencing the same pattern (1). As a result, there is a lot of uncertainty about the 2025 coffee harvest, precipitating a price increase that could continue through the first quarter of the new year (1). Not coincidentally, it was frost that severely damaged the Brazilian coffee crop back in 1977 — the last time coffee prices were trading this high (10).

How Will Consumers Be Affected?

While in the past the big brand coffee roasters have swallowed the increasing cost of coffee in an effort to keep customers satisfied, it looks like the latest boom will force their hand to adjust the cost to be absorbed by the consumer (11). Unfortunately, many experts are forecasting that the price trajectory that closed 2024 and opened 2025 could continue, as “panic” buying just set a record on the New York arabica futures for the 13th straight session of the Intercontinental Exchange (12). However, what does seem to be a safe bet in 2025 is that, despite all the current uncertainty surrounding the coffee supply, it will probably not set-off an East German Coffee Crisis redux like 1977 did (13).   

References

1. da Silva, J. (2024, December 10). Coffee Price Surges to Highest on Record. BBC https://www.bbc.com/news/articles/c36pgrrjllyo.
2. Trading Economics. (n.d.). Coffee. https://tradingeconomics.com/commodity/coffee
3. Trading Economics. (n.d.). Commodities. https://tradingeconomics.com/commodities
4. https://www.trabocca.com/coffee-knowledge/coffee-supply-chains/coffee-futures-the-basics-for-coffee-roasters/
5. Wikipedia. (n.d.). Futures Contract. https://en.wikipedia.org/wiki/Futures_contract.
6. Wikipedia. (n.d.). Tropic of Cancer. https://en.wikipedia.org/wiki/Tropic_of_Cancer.
7. Wikipedia. (n.d.). Tropic of Capricorn. https://en.wikipedia.org/wiki/Tropic_of_Capricorn.
8. Starbucks (n.d.). The Coffee Belt. https://www.starbucksathome.com/mena/en-ae/story/where-does-coffee-come
9. https://www.nescafe.com/au/coffee-culture/knowledge/coffee-producing-countries#:~:text=1.,3.
10. Curry, B. Brazil Uncertain of Effect of Frost on Coffee Trees. The Washington Post.  https://www.washingtonpost.com/archive/business/1977/05/19/brazil-uncertain-of-effect-of-frost-on-coffee-trees/a3415f49-c33b-412e-abf8-d58eea068541/.
11. Kopak, S and Sharma, N. A Global Coffee Price Spike is About to Drip into Your Mug. NBC News. https://www.nbcnews.com/business/consumer/coffee-costs-climate-change-consumer-prices-rcna191158
12. Angel, M and Teixeira, M. Coffee Futures in New York Jump 6% to New Record Amid ‘Panic Buying’. Reuters. https://www.reuters.com/markets/commodities/coffee-new-york-jumps-6-new-record-amid-panic-buying-2025-02-10/
13. Wikipedia. (n.d.). East German Coffee Crisis. https://en.wikipedia.org/wiki/East_German_coffee_crisis

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