• big companies trade 12 million bags per year¹⁾

¹⁾

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)}

The most immediate problem is the Brazilian harvest, which is picked from May to September. In mid-2024, many had expected that Brazil would deliver a good crop, halting the deficit era. And for a while, the indications were good — the trees flourished. But from October, the industry started to worry, with concern becoming alarm in December as high temperatures and late rains meant the early flowers didn’t turn into the so-called pinheads that later transform into the berries.^{4) 5)}

The next question is whether current prices, just above $3 per pound, are the new normal. Or, to put it in meme terms, is “coffee the new cocoa” as some investors claim? No so fast. Differently from cocoa, where farmers hadn’t made money for years and the subsequent lack of investment means aging and sick trees, coffee is a vibrant industry. In several countries, plantations are run as commercial businesses, rather than the hand-to-mouth version of smallholders in cocoa. Brazil, Vietnam and Colombia, plus a handful of other nations, have the potential to produce more, if the weather helps. Current prices provide an incentive to farmers.^{6) 7)}

But climate change presents a structural issue for coffee. For generations, the crop has been at the mercy of the weather, with frosts — and, to a lesser extent, droughts — repeatedly triggering large losses in Brazil. What’s new is that coffee is suffering now from heat — and no one in the industry is sure what high temperatures could mean for production.^{8) 9)}

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.¹⁰⁾

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.¹¹⁾

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.¹²⁾

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.¹³⁾

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.¹⁴⁾