Grounds for Concern: Record Coffee Prices Following Brazil’s Production Struggles

The coffee market has been experiencing significant price volatility, with both Arabica and Robusta coffee futures seeing historic highs due to tightening global supplies and weather-related production challenges in key regions, particularly Brazil. These dynamics highlight the precarious balance between supply and demand in the coffee industry, with broader implications for traders, producers, and consumers.

Delayed Deliveries and Supply Tightness

Brazilian farmers have delayed delivering this year’s coffee crop, anticipating even higher prices. This has exacerbated short-term supply constraints, creating financial losses for traders who expected to receive the beans. The resulting market uncertainty drove Arabica coffee futures on the Intercontinental Exchange (ICE) to USD 3.3545 per pound (lb) on November 29, 2024, their highest level since 1977, before settling at USD 3.1805/lb — a 1.5% decline. Similarly, Robusta coffee prices reached a 47-year high, peaking at USD 5,694 per metric ton (mt) before falling to USD 5,377/mt.

Figure 1. Arabica Coffee Futures

This reluctance to sell reflects a broader sentiment of uncertainty among farmers as they weigh the potential for even higher profits against the risk of further market instability.

Weather Woes and Production Challenges in Brazil

Brazil, the largest producer of Arabica coffee, has been grappling with persistent drought conditions, raising concerns about the 2025/26 crop. While recent rains have spurred flowering — a promising sign for production — these flowers do not guarantee a strong harvest. Producers are particularly wary of crop failures as soil moisture levels remain critically low in many regions.

The current challenges mirror those faced by cocoa earlier this year, with poor harvests in Ivory Coast and Ghana leading to significant supply shortfalls and record-high prices. As noted by leading European bank Commerzbank, the parallels between the cocoa and coffee markets highlight the vulnerability of global commodity supply chains to climate and weather disruptions.

Financial Instability Among Brazilian Traders

The delayed deliveries have placed immense pressure on coffee traders in Brazil. Notably, Atlantica and Cafebras, two major traders, are seeking court-mediated negotiations with creditors after failing to receive 900,000 60-kilogram (kg) bags of coffee promised by farmers. This reflects the broader economic strain on the sector, as delayed deliveries ripple through the supply chain, disrupting contracts and inflating costs.

Historic Price Trends and Outlook

Arabica coffee prices have surged by 71% this year, making it one of the best-performing commodities alongside cocoa, which has more than doubled in price due to supply constraints in West Africa. Meanwhile, New York cocoa futures reached USD 9,425 per ton, nearing record highs from earlier this year. Robust demand for these key commodities continues to drive price increases, amplified by fears of poor harvests.

The outlook remains uncertain for the upcoming 2025/26 coffee season. By Mar-25, when coffee beans reach the end of the filling stage, a clearer picture of production potential will emerge. Until then, concerns about inadequate rainfall and soil moisture will keep market participants on edge.

Long-Term Implications

The current market conditions highlight the importance of addressing climate resilience in coffee production. With global coffee demand continuing to rise, producers and governments must invest in sustainable practices and water management systems to mitigate future risks. Furthermore, stakeholders may need to explore diversification strategies, such as expanding supply chains to other regions, to reduce dependency on climate-vulnerable areas like Brazil.

In the short term, the market is likely to remain volatile, with prices fluctuating based on weather developments and farmer behavior. The return of rains offers some relief, but without sustained improvements in soil moisture, the risk of further supply disruptions remains high.