According to a Bloomberg market report, coffee prices hit another record high on Tuesday 10 December as concerns mount over global shortages, despite a recent drop in Robusta futures.
Volcafe, a major trader, lowered its production forecast for Brazil after a crop tour revealed the impact of a prolonged drought. According to Bloomberg, the country is expected to produce just 34.4 million bags of Arabica, which is down by about 11 million bags from a September estimate.
Meanwhile, global coffee production is on track to fall short of demand by 8.5 million bags in the 2025-26 season, marking an unprecedented fifth year of deficits, Volcafe said.
Futures for the Arabica variety have surged more than 80 per cent this year amid crop setbacks in key growing regions. They rose as much as 5.5 per cent on Tuesday – reaching levels not seen since 1972.
Fears are now growing about future supplies in Brazil after a prolonged dry spell earlier this year. That’s in addition to worries about output in Vietnam — the largest producer of the Robusta variety — after its key coffee belt suffered from dryness during the growing period and heavy rains at the start of harvest.
A series of disappointing coffee harvests in key producers has led to a reduction in global coffee stockpiles over the past four years. Meanwhile, China has emerged as a new and fast-growing consumer market.
The rally risks further raising costs for roasters and cafes, which may have to pass them on to consumers.
“We are currently experiencing a strong fundamental phase in the coffee market, which we expect to sustain the elevated price levels,” says Viktoria Kuszak, Research Associate at Sucden Financial.
According to Bloomberg, rising coffee prices are increasing costs for brokers, producers, and exporters, as they must put up more cash in margin deposits to hedge against potential losses.
This, combined with traders buying back futures to exit the market, is said to push prices higher and create a cycle of rising costs and greater volatility, with Arabica’s relative strength index climbing above 70 suggesting the market may be overbought.
