Global Coffee Prices Brew Record Highs on Supply Crunch

Global arabica coffee prices have reached an all-time high, surpassing $3.60 per pound, driven by a perfect storm of dwindling supply and robust demand, Reuters reports.

The surge is primarily attributed to the tightening supply of arabica beans in Brazil, the world's leading producer. Dealers note that 70%-80% of Brazil's current harvest has already been sold, and new trades are occurring at a sluggish pace. This is despite improved weather conditions following last year's severe drought. However, the upcoming crop is projected to be 4.4% smaller than the previous one, according to the Brazilian food supply agency Conab.

The global coffee supply crunch is further exacerbated by slow sales of Vietnam's robusta crop and delayed market arrivals of Central American and Colombian arabica beans. "Global coffee supplies remain limited," noted broker HedgePoint Global Markets, as cited by Reuters.

Arabica coffee futures on the ICE exchange, a key benchmark for global pricing, hit a record high of $3.6945 per pound earlier in the week, marking a nearly 15% increase for the year. Robusta coffee, a cheaper variety, also saw gains, rising by 0.9%.

The situation is further compounded by anticipated declines in coffee exports from India, the world's fifth-largest robusta producer, due to lower production and depleted carry-over stocks. Dealers suggest that farmers in both India and Vietnam, the world's top robusta producer, are holding back sales in anticipation of further price increases.

Adding to the supply woes, Brazilian farmers are prioritizing domestic sales over dollar-priced exports, despite the higher potential earnings, due to their improved financial standing in recent years. This prioritization has eroded Brazil's buffer stocks to an estimated 500,000 bags, a significant reduction from the traditional 8 million bags. This means any additional weather disruptions could have an amplified impact on global coffee prices.

Broker Sucden anticipates that the global coffee market will record its fourth consecutive deficit this season.