A Year in Coffee: 2024 Review

The Coffee Market started 2024 trading at 177 c/lb and little did we know that it would hit record highs in the run up to Christmas. The coffee market hit 348.35 c/lb on the 9th of December, a whopping increase of 171.50 c/lb! The year would not close 96.5% up, but it did finish at 319.75 c/lb, representing a 80% increase from the start of 2024 till the end.  

What triggered this almighty bull run that we still find ourselves in? Has it run out of steam or is there more momentum behind it still?  

There is a simple supply and demand story here whereby some of the key producing origins simply have not produced enough coffee or are predicted to supply less than originally expected. Countries like Honduras and Peru this year are reported to have produced around 15% less than the previous year and the next Brazilian crop in summer 2025 is reported to be not as big as everyone had originally hoped for (and needed). The role of expectations is key in any market and coffee is no different. The most important figure for Arabica is the Brazilian harvest, which occurs in the European summer and predictions for the 2025 harvest have been under what the market needs in terms of volume. This started in earnest early Autumn when initial data from the fields pointed to a lower upcoming crop. In early December Volcafe cut its crop estimate by 11 million bags which revealed the severity of an extended drought in the world’s largest Arabica producer. 

Volcafe see Brazil producing just 34.4 million bags of Arabica. That puts global coffee production on track to fall short of demand by 8.5 million bags in the 2025-26 season if their predictions come true, which would mark an unprecedented fifth year of deficits.  

Let’s not forget Robusta either though, Vietnam’s 2022/23 harvest was lower than expected and we can only hope that the crop predictions for the current crop are correct and that we eventually land at a figure larger than 28 million bags. 

Robusta started trading 2024 at 2,570 $/mt and closed at 4,875 $/mt , an increase that eclipsed Arabica and ended up in % terms at 89.5%. This has inevitably maintained pressure on Arabica pricing and while Robusta remains so high, it is unlikely Arabica will fall by too much. 

Both species have had supply issues which is certainly a major factor for the bullish movement we have seen but it does not account for the whole move.  

The other key factor? The role of speculators. Now this article is not to demonize speculators as any healthy market needs them and they play an important role. That said, they have certainly added fuel to the bullish fire we have observed in 2024. Coffee has been one of the best performing commodities in 2024 in terms of % growth and it is clear more and more speculators want a piece of that action. They are holding a decent Net Long Position and based on that metric, perhaps they think that the bull run still has legs to jump even higher so they can start cashing in when they think we have hit the top? Of course, you never know when you are on the precipice of a bear market, but it is unclear how long the demand side can weather pricing at these levels. One could argue that differentials could play a role and compensate for the higher C market, but we have seen differentials increase in many origins and to be honest, even if they went down by as much as they gone up, that would in no way compensate for the higher market. Coffee differentials are generally much stickier and more static in practice than people would like.   

“We have been here before,” Some people will say. Although we have hit historic highs, if you adjust previous highs for inflation, we definitely have been at higher real levels of the C market before. So what makes this high price environment that much harder to deal with?

Two things. Generally coffee is quite spikey, so when it goes up, it comes down pretty fast too: we have been in a high price environment for much longer than is historically typical. Secondly, the Dollar is headed for its best year in almost a decade. This Dollar strength makes £/mt and €/kg pricing much higher now compared to when the market was even close to where it was now. Take the last spike over 300 c/lb in April 2011 as an example. Within 6 months it was back down to around 230 c/lb and GBP/USD at the time was 1.60.

300 c/lb at 1.60 = 4,133 GBP/MT (2011)

320 c/lb at 1.25 = 5,643 GBP/MT (2024)

The dollar is experiencing its best year since 2015, bolstered by US economic strength, a restrained Federal Reserve rate-cutting cycle, and President-elect Trump’s tariff threats.

Why is the Dollar so strong? Part of the reason is the American Exceptionalism argument with investors wanting a piece of that pie. It is difficult to see where the Dollar is headed but many think a bubble is soon to burst in the US and that the historic highs of the S&P 500 are frothy and fragile. 

Regardless of what position you take on whether the US is in a debt fuelled bubble that could burst soon, what is clear is that coffee pricing for British and European Roasters is very high and has been high for much longer than we have seen historically.  

Price rises have occurred and many more will need to occur for trade to be sustainable. Ultimately, pricing to the consumer will need to go up as if we look at cafes, the price of coffee is only one of many variables that has shot up in the past few years. 

Nobody knows what the future holds but what we can say is that 2024 brought us historic highs in the New York Coffee market and US Dollar Strength has made those highs more painful for British and European Roasters and this has created a requirement for more finance for everyone across the chain, which is no easy feat.  

If you weren’t strapped in already, time to buckle up and do what you can to weather the choppy road ahead! Stay tuned for our weekly coffee market report for more updates on how the year progresses.