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Coffee
- big companies trade 12 million bags per year1)
The roots of the coffee crisis are in Brazil and Vietnam, the world’s two largest producers, as bad weather has hurt the crops. As a result, the world has consumed more coffee than it produced for four consecutive years. Over 2020 to 2024, the deficit between demand and supply is somewhere between 15 million and 20 million bags (each bag weighs 60 kilograms). In a typical year, the world consumes about 170 million bags. As things stand, the 2025-2026 season could extend the shortfall into a fifth consecutive year — an unprecedented outcome.2) 3)
Cocoa shares some similarities with coffee, with 60 to 70 percent of the global supply coming from two countries — Brazil and Vietnam for coffee and Ivory Coast and Ghana for cocoa. However, this makes it more risky.4)
Politically sensitive, yes. Weather sensitive, probably not. Wheat is produced over a wider geographical area than some other commodities. I think that commodities like coffee and cocoa may be more weather-sensitive. A frost in Brazil can skyrocket prices. Disease in West Africa will send cocoa prices soaring.5)
For both commodities, extreme weather and shortages fueled rallies. And, like cocoa, coffee production is concentrated in two countries. Soaring prices have also squeezed traders and forced them out of the market.6)
A bag weighs 60 kilograms.
Arabica's coffee premium to robusta dropped to around US$661/t on Friday (the lowest since May 2019) amid diverging fundamentals between the two types of coffee. There are expectations that the arabica harvest will encounter a supply surplus while robusta coffee will see a fourth consecutive year of deficit for the 2024/25 season. Recent reports suggest that upcoming dry EI-Nino weather conditions in Southeast Asian countries have raised concerns about robusta coffee harvest.7)
China
But as Bloomberg Opinion’s Javier Blas argues, left unsaid is a notable development that’s reshaping the coffee market: China is now developing a strong taste for the beverage, heralding an era when prices probably will be higher for longer than in the past.8)