Coffee Prices Set to Surge Amid Supply Chain Disruptions
Coffee lovers around the world may face higher prices as adverse weather conditions in top coffee-producing nations Brazil and Vietnam threaten next year’s crops. The disruptions are raising concerns about global supply chains and fueling a surge in coffee prices.
Arabica coffee futures for March delivery reached a 13-year high of $3.03 per pound last Friday, marking the first time since 2011 that prices have surpassed the $3 mark. Arabica, the primary coffee variety consumed in countries like Australia, has seen its price climb nearly 60% this year, making it one of the strongest-performing commodities.
Brazil, the world’s largest coffee producer, has faced significant challenges due to unfavorable weather. Dry conditions earlier this year resulted in fewer coffee cherries, which hold the beans, while a recent drought and high temperatures have raised concerns about the 2025/2026 harvest. Although the country experienced higher-than-average rainfall in October, particularly in the key coffee-growing region of Minas Gerais, analysts fear that previous weather extremes may have already damaged the crop.
Citi estimates that Brazil’s poor weather over the past three years may have led to a loss of up to 20 million bags of coffee beans. The current low soil moisture levels could further hamper the development of flowers and cherries crucial for upcoming harvests.
As supply falters, global demand for coffee continues to grow. Consumer preferences are shifting toward coffee-intensive options such as cold brew and ready-to-drink beverages, which require significantly more coffee grounds than traditional methods. Cold brews, for instance, use twice as many coffee grounds per batch compared to regular coffee.
Nitro brews, infused with nitrogen gas, and other pre-packaged coffee products are also driving demand, particularly in supermarket aisles. This dynamic of increasing demand and tightening supply has kept the physical coffee market in deficit for the past three years.
The surge in bean prices has prompted companies like Nestlé, which produces Nescafé and Nespresso, to raise prices. Nestlé’s head of coffee brands, David Rennie, acknowledged the pressures on the company’s bottom line, stating that further price hikes are likely.
“We are not immune to the price of coffee,” Rennie said during the company’s recent capital markets day. “But we have priced, and we will price.”
Commodity analysts predict that arabica prices could rise even further. Citi commodity strategist Arkady Gevorkyan revised the firm’s three-month price target for arabica coffee to $3.10 per pound, citing ongoing risks to supply from Brazil and Vietnam.
While analysts anticipate a potential surplus in the coffee market by 2025, the current uncertainties around Brazil’s crop health and ongoing production challenges could lead to a structural deficit. Citi has upgraded its 2024 arabica price forecast to $2.80 per pound, with a normalization to $2.65 per pound expected by 2026.
The rise in coffee prices is part of a broader rally in soft commodities such as cocoa and sugar, posing challenges for central banks in controlling inflation. In Australia, core inflation stood at 3.5% in the September quarter, remaining above the Reserve Bank’s 2% to 3% target.
For now, coffee enthusiasts and businesses alike must brace for rising costs as the industry grapples with weather-induced supply shocks and growing consumer demand.
