Brazil is reeling from record drought in what is the world's largest coffee producer. This provokes a sharp rise in coffee prices around the world.
Points of attention
- Record droughts in Brazil and Vietnam, the two largest coffee producers globally, are leading to a sharp rise in coffee prices around the world.
- Market participants are closely monitoring the adverse weather conditions in major coffee-producing regions, anticipating further price increases due to the supply shortage.
- The demand from Asian countries is contributing to the rise in coffee prices, creating a complex market dynamic that may result in continued price hikes.
- The peak of coffee price growth is anticipated to rise even further, with prices already up almost 55% compared to the same period last year.
- Coffee producers are facing challenges due to adverse weather conditions, such as drought, frost, and fires, which have damaged a significant portion of coffee plantations.
What is known about the likely sharp rise in coffee prices
It is noted that such a severe drought has not been recorded in Brazil in the last 70 years.
According to the report of the Center for Advanced Studies in Applied Economics at the School of Agribusiness of the University of São Paulo, the coffee bean harvesting season ends in September, which has not undergone any changes compared to last year.
However, due to the drought, farmers are unable to start preparations for the 2025-26 season.
The second largest producer of coffee in the world is Vietnam, which is also experiencing severe drought and high temperatures that affect the harvest.
Due to the shortage of offers from producers from both countries, coffee prices in the world began to rise.
It is noted that market participants are closely monitoring how coffee in Brazil tolerates adverse weather conditions, due to which the flowering period may be at risk, and because of this, there may be no coffee beans at all.
This can lead to reduced coffee yields. As the market tends to anticipate such movements, we have already seen the prices of Arabica in New York and Robusta in Europe trading at higher levels, says Felipe Serigata, coordinator of the master's program in agribusiness at the Getulio Vargas Foundation, University of São Paulo .
How much have coffee prices increased over the past year
It is emphasized that the peak of coffee price growth is yet to come. In particular, the record price increase set in the late 1970s, after a severe frost destroyed 70% of coffee plantations in Brazil, has yet to be surpassed.
However, coffee prices have been rising rapidly in recent years.
In August, the International Coffee Organization's Composite Indicator Price, which combines the prices of several types of green coffee beans, averaged $2.38 per pound (about UAH 98).
This is almost 55% higher than the prices for the same period last year.
In part, the increase in price is also influenced by increased demand from Asian countries. In addition, weather conditions affect price growth.
Drought, frost and fires have damaged a fifth of the cultivated area of Arabica coffee producers in Brazil. It does not look like the situation will improve in the near future. They need consistent rainfall to recover, says Billy Roberts, senior food and beverage economist at Colorado-based CoBank.
