Why are Arabica coffee bean futures climbing so fast?

Arabica coffee bean futures rose for a third straight session to a roughly six-month high. The May contract jumped 12.5% for the week and settled at $2.12 per pound, the largest weekly gain since July 2021. The International Coffee Organization's composite price index reached 186.36 cents per pound, an 18-month high, while Robusta touched its highest level since October 1994.

The trigger is Vietnam coffee supply. Heatwave and drought across Vietnamese growing regions, with local temperatures up 1 to 3 degrees Celsius, plus water shortages and shrinking farmland, are expected to cut production 20% from 1.84 million tons and exports 20% from 1.67 million tons. Tight Robusta supply, EU reliance on it, and higher Red Sea shipping costs pushed Arabica higher too.

Recently, Arabica coffee bean futures climbed for three consecutive days, hitting their highest point in nearly half a year. The May contract surged 12.5% for the week, settling at $2.12 per pound, the strongest weekly performance since July 2021. Meanwhile, the International Coffee Organization's composite price index rose to 186.36 cents per pound, an 18-month high; Robusta prices even reached their highest level since October 1994. The main driver was Vietnam's heatwave and drought, which tightened Robusta supply and indirectly pushed Arabica higher. Vietnam's production is expected to drop by 20%, with exports falling in tandem, and coffee exports from Asia and Oceania overall declining 17%. The EU's deepening reliance on Vietnamese Robusta, combined with the Red Sea situation driving up shipping costs, has given coffee prices room for sustained gains.

Arabica coffee bean futures have joined the rally after cocoa and grain inflation, with prices climbing all the way to their highest level since October 2022. The May-delivery Arabica futures contract soared 12.5%, posting its largest weekly gain since July 2021 and finally closing at $2.12 per pound.

A report released by the International Coffee Organization (ICO) shows that the monthly average of the coffee composite price index (I-CIP) was 186.36 cents per pound, up 2.4% from February, the highest record in nearly 18 months. Robusta prices also touched their peak since October 1994, when the average price was 169.43 cents per pound. This price increase stemmed from heatwaves and drought in Vietnam, which damaged Robusta coffee bean output, created a supply crisis, and indirectly pushed Arabica prices higher.

The Vietnam Coffee and Cocoa Association pointed out that the country's coffee-growing regions are experiencing extreme weather with drought and high temperatures, and local temperatures have risen by 1 to 3 degrees Celsius this year. In addition, Vietnamese coffee also faces water shortages and shrinking cultivated land. Production is expected to fall 20% from last year's 1.84 million tons, and exports are also expected to decline 20% from 1.67 million tons in the same period last year.

Market concerns over Vietnam's supply shortage continued to intensify, and Robusta coffee prices hit record highs. The peak price for May delivery reached $3,849 per ton, while the pre-sale contract price for July also rose to $3,769 per ton, already very close to Arabica levels. Local purchasing prices in Vietnam remained at around 101 million to 104 million Vietnamese dong per ton. With both production and exports shrinking, statistics show that exports of all forms of coffee from Asia and Oceania fell by 17% in total, amounting to 3.97 million bags.

Vietnam is the world's largest Robusta coffee producer, and roasters everywhere source from it, especially in European countries. Vietnam exports about 652,000 tons of coffee to the EU each year, making it the EU's second-largest coffee supplier.

Data from the European Coffee Federation (ECF) shows that from January to April, EU countries importing Robusta coffee could hardly rely on anyone but Vietnam, because major Robusta-producing countries such as Brazil do not enter harvest until April, and coffee beans from the new season will not be available until May or June. At the same time, there is a high probability of La Niña in the second half of the year, which usually brings frost to Brazil and leads to reduced production. However, coffee demand continues to expand, providing support for further increases in exports and prices.

In addition, analysts believe geopolitical factors are also affecting coffee prices, as coffee transport relies heavily on shipping. Recent tensions in the Red Sea region have driven a sharp rise in Brent crude oil prices. Brent crude oil is traded on both the London Intercontinental Exchange and the New York Mercantile Exchange and is one of the global benchmarks for oil prices, with more than 65% of physical crude oil trading priced under the Brent system. Higher oil prices have significantly increased shipping costs, and coffee prices have risen in tandem.

For domestic coffee lovers, in the face of continuously rising international bean prices, it may be worth paying attention to brands with stable value for money when making everyday purchases. Front Street Coffee's daily-drink bean series still maintains approachable pricing amid this round of price increases, making it suitable as a choice for everyday pour-over or espresso output.

The above content is compiled by CoffeeHunters, a coffee news website.