As tariffs from the Donald Trump U.S. administration collide with climate change-driven drops in output, raw coffee bean prices are continuing their steep climb. As a result, consumer budgets for those who enjoy coffee are expected to come under even more strain.
According to Bloomberg on the 16th (local time), arabica coffee futures used by major coffee chains such as Starbucks soared to $4.24 per pound, approaching the all-time high of $4.29 set in February. Coffee futures serve as the benchmark that determines future coffee prices and have risen about 50% since early last month.
The main reason coffee futures prices are surging is unstable inventories. As weather in Brazil, the world's largest producing region, becomes increasingly erratic, yields have worsened, and as a result arabica coffee inventories have fallen to their lowest level since April last year. The market is therefore keeping a close eye on Brazil's weather forecasts.
In a report, Nadiara Pereira, a meteorologist at weather specialist Climatempo, said, "The expected rainfall in the southeastern coffee-growing region is still far from sufficient to restore soil moisture." This is interpreted to mean that inventories of Brazilian coffee beans will not easily stabilize going forward.
Bloomberg said, "Prices are whipsawing as investors bet on coffee futures amid concerns that tariffs and drought will reduce coffee bean supplies from Brazil, the world's largest producer."
In particular, the United States imports about one-third of its consumer beans from Brazil, so the retail institutional sector has been hit directly. According to the U.S. Bureau of Labor Statistics, as of the 11th, the price of ground coffee at grocery stores in August hit a record $8.87 per pound, and the coffee consumer price index (CPI) jumped 21% from a year earlier, the biggest increase since 1997.
Since the Trump administration imposed high tariffs, shipments of coffee bound for the United States have already fallen markedly, amplifying the shock of reduced supply. According to transportation data service provider Vizion, so far this year coffee shipments from Brazil to the United States have been cut by about half, and last month they plunged 75% from a year earlier.
Reuters said, "Coffee is among the items keeping U.S. food prices persistently high," adding, "After tariffs were imposed and shipments were cut off, local roasters have been rushing to buy any available volumes, including exchange-certified inventories."
So far, surplus inventories have cushioned the blow from reduced supply, but if this continues, retail coffee prices can only go up. Thijs Geijer, food and agriculture senior economist at ING, said, "If Americans consume coffee as usual, inventories have their limits," adding, "Additional shipments will be essential, but the question is where that volume can be sourced."