Coffee prices will probably stay high due to the drought in Brazil
Coffee prices are likely to remain elevated in the coming year as dry weather conditions persist in Brazil, the world’s largest producer of the commodity.
Coffee prices in South Africa have increased by over 20% on an annual basis since the beginning of the year, FNB agricultural economist Paul Makube told the Mail & Guardian.
“That’s a massive increase. Those price increases have been sustained since the beginning of the year, and there’s no respite at the moment, given the tight supply situation in the world.
“Brazil is actually your biggest producing country and it’s followed by Vietnam,” he said, adding that the latter has also been experiencing challenges with crop production.
“The two countries account for over 70% of the global production, hence it becomes a big challenge and you do not necessarily have what I can call an alternative source.”
On a global level, coffee prices have surged by over 70% this year.
The International Coffee Organisation said the Robustas coffee bean reached a 47-year high for two consecutive months in August.
“The New York and London ICE markets were drivers of growth, expanding by 2.1% and 2.2% and reaching 239.61 and 198.24 US cents/lb, respectively — the highest point since February 2022 for the Arabica futures, and the highest point since May 1977 for the Robusta futures (nominal prices),” it said.
Arabica coffee futures are trading at around $3.1805 per pound, which is up 70% from a year ago, said Wandile Sihlobo, the chief economist at the Agricultural Business Chamber of South Africa, adding that there is no certainty about when supplies from Brazil would recover.
“Prices may remain fairly elevated in the coming year, depending on the pace of supply recovery in Brazil,” said Sihlobo.
Makube added that, when coffee prices spike, it’s a confirmation of supply tightness.
“The stocks are drying up,” he said.
Nestlé anticipates a further increase of 30% to 40% in coffee prices next year, the business executive officer of coffee and beverages for the company’s East & Southern Africa region Carl Khoury said, attributing this year’s jump to a combination of factors including climate conditions in Brazil and Vietnam as well as supply-chain disruptions and rising logistics costs.
Khoury said price increases next year are likely to be driven by lower crop yields caused by droughts and inadequate rainfall in key coffee-producing regions and “poses challenges for supply and pricing in the local market”.
The only thing that could bring prices down is a dip in consumer demand, Makube said.
“You might see some price correction but, until then, prices will remain elevated due to the mere problem of supply constraint,” he said.
He added that a shortage of coffee was not a concern in the medium term but challenges would emerge if the dry weather persisted.