The global coffee market has ended 2024 on a historic note, with the International Coffee Organization’s (ICO) Composite Indicator Price (I-CIP) reaching an average of 299.61 US cents per pound in December. This marks a significant 10.7% increase from November and a staggering 70.5% rise compared to December 2023. Not only does this surge represent a new high for the decade, but it’s also the highest monthly average recorded since April 1977.
Key Drivers Behind the Price Surge
1. Strong US Dollar: The robust performance of the US dollar has been a key factor in driving coffee prices higher. As the strongest year for the dollar in a decade unfolded, costs at coffee-producing origins increased significantly. Exporters faced heightened operational expenses, putting upward pressure on prices. The situation was exacerbated by financial strains on producers, with several major Brazilian exporters seeking court protection to negotiate with creditors and avoid bankruptcy.
2. Logistical Bottlenecks: Global supply chains continued to suffer in 2024, adding to market tensions. Prolonged shipping times, particularly through the Suez Canal, restricted coffee shipments to Europe. Coupled with a shortage of containers and increased port fees, these disruptions led to delays and higher costs. As a result, European markets faced relative undersupply, which further boosted coffee prices.
3. Market Dynamics and Speculation: The arbitrage between the London and New York futures markets expanded by an astonishing 44.9%, reaching 90.72 US cents per pound in December. This represents the highest level in 27 months, driven by faster growth in Arabica prices compared to Robusta. The increasing differential reflects shifting preferences in the market, with roasters adapting their blends to balance cost efficiency and quality.
Implications for the Coffee Industry
The surge in prices has far-reaching consequences across the coffee supply chain:
- Producers: While higher prices can be beneficial, they also come with increased risks. The financial strain on exporters highlights the challenges of maintaining stability in volatile markets.
- Roasters and Retailers: The sharp rise in prices is forcing roasters to pass on costs to consumers. This is likely to result in higher retail coffee prices globally, which may impact demand, particularly in price-sensitive markets.
- Consumers: End-users are already experiencing the effects of rising costs, with many coffee drinkers facing higher prices for their daily brew. The impact is more pronounced in regions dependent on imports, where currency fluctuations add an extra layer of cost.
Looking Ahead
As the coffee industry enters 2025, stakeholders are bracing for continued volatility. The delayed implementation of the European Union’s Deforestation Regulation (EUDR), now set to take effect in late 2025, adds another layer of uncertainty to an already complex market landscape.
Moreover, with global consumption showing modest growth of 2.2% to 177 million 60-kg bags, the balance between supply and demand will remain a critical factor. Coffee producers and traders will need to navigate these dynamics carefully to maintain stability in the face of ongoing challenges.
The ICO’s December 2024 report paints a picture of a resilient yet turbulent market, where record-high prices underscore the complex interplay of economic forces, logistical challenges, and evolving consumer preferences.