How Extreme Weather in Brazil and Vietnam is Driving Coffee Prices to Record Highs: What It Means for Your Daily Tectonic Cup
Coffee prices have soared to record highs due to extreme weather conditions affecting production in Brazil and Vietnam, the world's top two coffee producers[1][2].
In Brazil, excessive rainfall followed by drought in key coffee-growing regions like Minas Gerais has damaged crops[1]. The country received 235% more rain than average in March, followed by no rainfall in April and May[1]. This has led to a significant increase in arabica coffee prices, which have risen over 30% since the start of 2024 and 63% since November 2023[1].
Meanwhile, Vietnam is experiencing its worst drought in years, severely impacting robusta coffee production[2]. The country's 2023/24 coffee production is expected to drop by 20%, potentially resulting in the smallest crop in four years[1][2]. Robusta coffee prices have consequently surged to record highs[6].
The combined effect of these weather-related issues in Brazil and Vietnam, which together account for 55% of global coffee production and 50% of exports, has created a supply shortage[1]. This has prompted investors and traders to increase short coverings, further elevating prices[1].
For example in Tectonic’s terms Q1 we were purchasing our Brazil coffees for $2.07 and as of Q3 we are paying $3.21, this represents a 30%+ jump in our raw goods. This is, unfortunately, something that we cannot continue to absorb and we have to adjust our prices to compensate for the spike in pricing.
In addition, based on recent conversations with our coffee traders, we expect coffee prices could reach up to $3.61 per pound in the near future after differentials.
As part of broader economic shifts, recent negotiations between dockworkers represented by the International Longshoremen's Association (ILA) and port authorities on the East and Gulf Coasts have resulted in a well-deserved wage increase of 62% over the next six years. While these necessary wage adjustments—approximately $4 per hour each year—support fair compensation for workers, they do contribute to rising differentials, from $0.55 to $0.61. Alongside these factors, increased freight rates and the ongoing ripple effects from earlier port strikes are also adding pressure on overall costs.
The forecast: We would love to say that the forecast for coffee is positive but the reality with climate change this trend of demand outstripping supply as warmer weather reduces crop production will continue to grow.
To dive even deeper, check in on these great sources:
[1] Coffee Prices Soar as Extreme Weather Hits Brazil & Vietnam https://fooddigital.com/drink/coffee-prices-soar-as-extreme-weather-hits-brazil-vietnam
[2] Coffee prices hit fresh highs as weather wreaks havoc on crops in ... https://www.abc.net.au/news/2024-08-07/coffee-prices-jump-on-weather-concerns/104104818
[3] Weather Concerns in Brazil and Vietnam Boost Coffee Prices | Nasdaq https://www.nasdaq.com/articles/weather-concerns-brazil-and-vietnam-boost-coffee-prices
[4] Brazilian Coffee Monthly Update: September 2024 - Rabobank https://www.rabobank.com/knowledge/q011332980-brazilian-coffee-monthly-update-september-2024
[5] Rising Coffee Prices Show Need for Beans Beyond Brazil, Vietnam https://www.bloomberg.com/news/articles/2024-08-29/rising-coffee-prices-show-need-for-beans-beyond-brazil-vietnam
[6] Robusta Coffee Soars To A Record High On Vietnam Production Woes https://www.barchart.com/story/news/28183872/robusta-coffee-soars-to-a-record-high-on-vietnam-production-woes
[7] Insufficient Rain in Vietnam and Brazil Pushes Coffee Prices Higher https://www.nasdaq.com/articles/insufficient-rain-in-vietnam-and-brazil-pushes-coffee-prices-higher
[8] Coffee Prices Settle Higher on Production Concerns in Brazil and ... https://www.goldeaglecoop.com/news/story/27232117/coffee-prices-settle-higher-on-production-concerns-in-brazil-and-vietnam