- Coffee prices hit a record high, breaking $4/lb for the first time
- Trump’s recent tariff threats on Colombian coffee have exacerbated the situation
- With arabica stocks down 100,000 bags, roasters face soaring costs, and retail prices could rise 20-25%
IN recent months, the global coffee market has experienced an unprecedented surge in prices, with arabica futures reaching record highs.
The industry has been holding its breath watching prices climb, and many are wondering what’s next as prices finally broke the $4 threshold yesterday, surpassing the previous peak set in 1977 – caused by a destructive “black frost” in Brazil.
This dramatic increase is attributed to a confluence of factors, including adverse climatic conditions in key coffee-producing regions and geopolitical tensions impacting trade flows.
In Brazil, supplies remain critically low following last year’s severe drought, which negatively impacted projections for the upcoming harvest. The country accounts for about one third of global arabica production.
“The main driver right now is expectations of a smaller crop in Brazil for Arabica beans, contrary to the expectations of a good crop about six months ago,” says Javier Blas, Bloomberg opinion columnist covering energy and commodities.
“But the 2025-26 potential shortfall just adds to four years of disappointing supply, which have depleted inventories both in destination and origin. The market is now moving to a level where it destroys demand to prevent a further drop in stocks.”
According to dealers, exchange data indicates that major roasters like Nestlé (NESN.S) and JDE Peet’s (JDEP.AS) are currently understocked and still need to make significant purchases, while speculators maintain a bullish outlook on coffee.
Trishul Mandana, managing director at Volcafe, told Reuters that “the real story is that supply has fallen much faster than demand (…) The tightness in Brazil and the current differentials are telling us the real story of the 24/25 crop – and which will no doubt quickly lead to the disappearance of certs (arabica-certified stocks at ICE). And things could get messy rather quickly.”
Certified arabica stocks have rapidly declined recently, dropping by nearly 100,000 bags to a total of around 900,000 bags.
Concurrently, political developments, notably Trump’s tariff threats against Colombia – a nation accounting for approximately 30% of U.S. coffee imports – have exacerbated market volatility.
The mere suggestion of imposing a 25% tariff on Colombian goods in response to immigration disputes sent shockwaves through the market, further inflating prices.
“Adding to these pressures, emerging markets like China and India are driving record demand growth, especially in premium coffee segments,” says Daniel Covarrubias, Director of the Texas Center for Border Economic and Enterprise Development at Texas A&M International University.
“Supply chain disruptions and rising freight costs continue to strain the market, as they do in many other sectors.”
The repercussions of these developments are profound. Small and medium-sized enterprises, particularly independent roasters and traders, are grappling with escalating costs that erode profit margins.
It has been a slow boil. The financial strain of the last few years has precipitated a wave of consolidations, with mergers and acquisitions becoming commonplace as businesses strive to achieve economies of scale. Regrettably, some enterprises have been compelled to cease operations, unable to withstand the financial pressures.
The industry’s future appears increasingly precarious, with stakeholders expressing growing apprehension about sustainability and long-term viability.
Tariffs and turmoil
The Trump administration’s aggressive trade policies have introduced additional layers of complexity to the already volatile coffee market.
Beyond Colombia, the administration has proposed substantial tariffs on imports from Canada and Mexico, key trading partners in the North American supply chain. A 25% tariff on Canadian and Mexican goods, coupled with a U.S. levy of 10% on Chinese imports aims to bolster domestic industries but risks significant economic repercussions.
The imposition of such tariffs could disrupt the intricate web of the coffee supply chain as the world spirals into a “tit for tat trade war.”
“The most immediate danger is if U.S. President Trump imposes tariffs on any major exporting country, as he recently threatened to do on Colombia,” says Javier. “The risk of universal tariffs is also high.”
According to the U.S. Department of Agriculture, Colombia supplied 20% of the coffee imported by the U.S. in 2023/2024, making it the country’s second-largest source after Brazil, which provided 32%. Vietnam accounted for 8% of U.S. coffee imports, while Honduras contributed 7%.
Mexico is also a notable exporter of coffee to the United States, and increased tariffs could lead to higher costs for U.S. importers, subsequently passed onto consumers.
“This situation has led major coffee-producing countries like Brazil and Colombia to pursue trade negotiations with Asian markets, while simultaneously developing more regional trade frameworks to reduce U.S. market dependency,” says Daniel.
“Especially given that Colombia’s broader agricultural trade relationships – including their position as a destination for 11% of U.S. corn exports – could be impacted by retaliatory measures. However, the U.S. remains a crucial market that cannot be easily replaced.”
Beyond the tariffs themselves, smaller specialty coffee importers are looking at higher financing costs, increased risk associated with more expensive coffee, and the potential for reduced shipment volumes – leading to a need for a higher margin. The result could be an final average sales price of up to $8.75 /lb.
Moreover, the broader economic impact of strained trade relations may lead to retaliatory measures, further destabilising the market.
The potential for tariff escalations extends beyond the Americas. The administration’s adversarial stance toward the European Union and China raises concerns about future trade barriers that could affect global coffee distribution.
Given coffee’s status as a globally traded commodity, any significant disruption in trade flows can have cascading effects, influencing prices and availability across markets.
What’s in the cards for coffee?
Historically, the coffee industry has weathered periods of volatility, most notably during the coffee crisis of the 1970s.
During that era, a combination of supply shocks and geopolitical tensions led to soaring prices, resulting in the consolidation of the industry. While some companies managed to adapt and survive through diversification and strategic planning, others succumbed to the economic pressures.
Today, experts predict that coffee prices may continue their upward trajectory in the short term. Javier predicts an additional increase of 20-25% for retail coffee prices in the coming months in a recent Bloomberg video.
Factors such as ongoing climatic challenges, geopolitical tensions, and market speculation contribute to this outlook. Although high prices look like a lasting reality for the industry, the long-term prognosis remains uncertain.
Many coffee trading experts seem to be advising industry stakeholders to brace themselves for a long, difficult spell – foreseeing “far more turbulence ahead.” While most reports point to Brazil’s dwindling coffee supply as the main driver of high prices, not all agree.
The significance of deliverable certified coffee stocks and the factors influencing them are often overlooked, according to commodities expert Judith Ganes. She argues that they serve as one of the most critical indicators in the market – arguably even more important than pinpointing the precise size of the upcoming Brazilian crop.
The current inversion – or backwardation in the Coffee C market – is largely driven by shrinking stocks of ICE-certified coffee, with Arabica stocks seeing a sharp decline, particularly in the fourth quarter of 2023. Certified stocks are now declining instead of replenishing, signaling a shift that warrants close attention.
As deliverable stocks in ICE-licensed warehouses shrink, the market encourages immediate sales over holding for future delivery. Sellers are driven to sell now at higher prices, speeding up the flow of coffee into the market.
The coffee industry’s resilience will hinge on its ability to navigate these multifaceted challenges.
Adaptation strategies may include diversifying supply sources, investing in sustainable farming practices to mitigate climate impacts, and fostering collaborative relationships to withstand geopolitical uncertainties.
Coffee Intelligence
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