
We’re going to start 2025 off with a topic we don’t often talk about – the coffee futures market. You may have noticed over the last few months a fair amount of reporting on the commodity coffee market and its record prices. We don’t usually pay too much attention to the commodity market because it isn’t our area of expertise and as we buy all our coffees based on their flavour profile, and we pay a premium for the quality, the commodity prices don’t often factor in to our thoughts. However, 2024 saw record prices in both the Arabica and Robusta futures markets and to give the records some context it’s useful to go back to the frost of July 2021 in Brazil.
The July frost in Brazil led to an estimated 10% loss of production during the harvest and came at a particularly difficult time. The frost hit after a period of tricky growing and shipping conditions and caused a spike in the Arabica futures market. This has been followed by drought and wildfires during 2024. Brazil is by far the largest coffee producing country in the world and what happens there has corresponding impacts on all coffee markets. Commodity grade buyers found themselves priced out of the Arabica market and turned to Robusta coffee from Vietnam. Vietnam is the second largest coffee grower, and the largest grower of Robusta.
But over the last few years Vietnam has faced its own challenges. The country has shifted from the El Niño weather pattern to the La Niña pattern. This change in weather affected the Robusta crop, and by 2024, the harvest was estimated to be down by 20%. In our view, this decrease in production, alongside the problems in Brazil, has led to nervousness and speculation in the futures markets. Both the Arabica and Robusta futures markets are up by over 60% during 2024.
Many commentators in the industry consider the commodity markets to be overpriced but as there is a world of speculative trading that happens in the commodity markets, it’s impossible to know if that’s true. The next harvests from Brazil and Vietnam will show the extent of short stocks in coffee and if these price increases will feed into the specialty, quality-focussed areas of growing. As large buyers compete for Robusta coffee, some may be forced into the Arabica market, which may put further pressure on farm-gate pricing. This could be great for farmers who sell into the commodity markets – if they receive the increases. Most coffee farmers sell cherry. The price they receive has more to do with their local conditions, and whether the coffee cherry traders and cooperatives have buyers contracted and ready to fix their position. When the futures markets are high, these buyers often wait for a dip or correction before finalising their contracts.
We buy coffee and agree prices based on the quality of the coffee, costs of production, and local conditions. However, we are not immune to the impact of a frost in Brazil, a drought in Vietnam, or a run on the futures market and we may yet see the current conditions impact on the way we buy coffee over the next couple of years. Stability is highly valued in farming, and we will continue to value the relationships we have, some of which go back decades.
Best wishes for 2025.
Monmouth x