The drought in Brazil is a significant factor affecting global coffee prices, leading to a forecasted decrease in Arabica production.
Speculative market activities and geopolitical tensions are also influencing coffee prices, not just supply issues.
Despite rising prices, coffee consumption in Russia is increasing, indicating a strong market demand.
If drought conditions persist, further declines in coffee production could lead to even higher prices in the coming years.
Retail prices for coffee in Russia may continue to rise as import costs increase due to global price hikes.
The coffee market may experience cyclical fluctuations, with potential price corrections following the current surge.
World Coffee Prices Surge Amid Drought in Brazil
World coffee prices have reached a 13-year high, with Arabica coffee trading at approximately $3 per pound, a significant increase attributed to severe drought conditions affecting Brazil's coffee harvest. According to Trading Economics, this price surge marks the highest level since April 2011. Experts indicate that Brazil, the world's leading coffee producer, has faced a challenging growing season, with forecasts predicting a 10.5% decrease in Arabica production for the 2025-2026 season, amounting to only 40 million bags. Despite recent rains, soil moisture remains low, hindering fruit development and raising concerns about future harvests.
Factors Influencing Coffee Prices
The rise in coffee prices is not solely due to crop failures; market speculation and external factors also play a crucial role. Analysts, including Lyudmila Rokotyanskaya from BCS World of Investments, highlight that speculative market dynamics are contributing to the price increase. Additionally, geopolitical tensions, particularly the ongoing conflict in the Middle East, have complicated transportation logistics for coffee beans from Asia, further driving up costs. In Russia, the weakening ruble has compounded inflationary pressures, resulting in higher retail prices for coffee products.
Impact on Coffee Consumption and Retail Prices
Despite the rising prices, coffee consumption in Russia has increased, with a reported 6% rise in purchases and a 2% increase in retail outlets selling coffee. The median price of coffee in Russia has risen by 13% in 2024, reflecting broader inflation trends. Analysts predict that as global prices continue to rise, Russian retailers may be forced to increase their prices to maintain profit margins. The historical maximum price of coffee is nearing, with projections suggesting it could reach $480 per ton if current trends persist.
