Soaring espresso costs power roasters so as to add lower-cost beans to blends | USAEMALL.com

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Global coffee prices have soared to record highs as adverse weather conditions disrupt crops, driving up costs for consumers and pushing roasters to add lower-cost beans to their blends.

Prices for both robusta beans, used in instant coffee, and the higher-quality arabica variety have surged in recent months. London robusta futures, the global benchmark, reached a record $4,971 per tonne this week, while arabica futures traded in New York climbed to $2.49 per pound, close to their highest in decades.

“Prices may not have reached their peak,” said Steve Butler, co-founder of ChAI, a commodity price forecasting firm that uses artificial intelligence. He added that the rally has attracted speculators, who are likely to continue increasing their bets that prices will keep rising. 

A recent cold snap in Brazil, which accounts for roughly a third of the world’s coffee production — 70 per cent of which is arabica — has sparked fears of a supply shortage. Brazil’s frosty weather follows months of drought in Vietnam, the world’s largest producer of robusta, pushing global supplies of the beans into their fourth consecutive year of shortage.

Rising shipping costs are also putting pressure on the market. Attacks by Houthi militants in the Red Sea since November have forced vessels travelling between Asia and Europe to take the longer route around the Cape of Good Hope instead of passing through the Suez Canal.

Roasters are feeling the squeeze. Anna Manz, chief financial officer at Nestlé, told investors in July that “input costs from both coffee and cocoa” would put pressure on the food giant’s profit margins for the next six months.

These costs are also being passed on to consumers. In Italy, cafe-goers can no longer enjoy their morning espresso for €1. The average price across the country’s cities has risen 15 per cent since 2021 to €1.20 this year, according to consumer group Assoutenti. 

Consumers may also notice a change in taste. When arabica prices were high, from mid-2021 until the start of 2023, and robusta supplies were ample, roasters started to add more of the cheaper bean into their blends, said Charles Hart, senior commodities analyst at BMI, “which in turn saw inventories in Vietnam and Brazil drawn down and, thus, laid the groundwork for the increase in coffee prices in 2024.” 

Now, faced with escalating costs for both bean varieties, roasters are trying to protect their shrinking profit margins by sourcing arabica from cheaper producers, primarily Brazil, and by adding more lower-cost bean varieties to their blends.

“Normally, the spread between New York [arabica] and London [robusta] is tight only when prices are low,” said Judy Ganes, a veteran coffee analyst. “Now, with prices high, roasters are incorporating more lower-grade beans, mostly from Brazil.”

Despite the upward pressure on prices, the coffee market is still “not as much of a wild west as the cocoa market earlier this year”, said Butler. 

Prices of the main ingredient used to make chocolate rocketed, leading to extreme market swings as hedge funds and other speculators scrambled to exit losing bets. While coffee has not so far seen similar volatility, high prices will lead to a “battle” between traders who took short positions at the end of June or early July, when the market dipped, and those who have bet prices will continue to rise, Butler added.