A Cup of Joe Could Break the Bank

January 13, 2025 | Catherine Callaghan, Associate Research Analyst

Over the last few years, a cup of coffee has become much more expensive as the costs of the two primary beans used to make the beverage, Arabica and Robusta, have moved significantly higher. Arabica beans are often imported to the U.S. from Brazil and are used to make higher quality coffee blends, while Robusta is a cheaper type of bean often exported from Vietnam and used to make instant coffee. A variety of factors can impact the prices of these beans, including weather irregularities, demand fluctuations, supply chain disruptions, regulatory changes, and currency movements.

This year, major drivers of prices include the high demand for coffee and concerns around supply given severe weather in Brazil and Vietnam. A late August frost in Brazil impacted the newly flowering trees and, thus, the next season’s beans, while severe droughts in both countries have impacted harvests. Droughts can cause coffee tree branches to die, leaves to fall (prohibiting photosynthesis), early flower shedding, and bean damage, all of which reduce a coffee tree’s expected harvest. Aggregate demand for coffee has gradually been increasing in tandem with these issues, primarily due to the growing coffee market in China. According to the U.S. Department of Agriculture, coffee consumption has risen by roughly 150% in China over the last decade, as the drink has become more affordable, accessible, and grown in popularity among young people. This growth is projected to continue into the next season of coffee consumption, up to 6.3 million bags (132lb each) from 5.8 million bags in the 2022/2023 season.

These challenged supply/demand dynamics have been felt by investors. To that point, coffee futures prices climbed 70% in 2024 and remain well above long-term averages as traders hedge against potential production delays and the anticipation of higher coffee prices. Additionally, name brands have also felt a squeeze, as Nestlé (the parent company of brands such as Nescafé and Nespresso) announced in November its plans to increase coffee prices and make smaller packages to absorb the higher costs of coffee beans. As consumers consider alternative morning beverages like orange juice or milk to cut costs, a word of advice: A cup of coffee is worth the price!

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