Coffee futures (KC=F) have ripped more than 30% year to date, hovering near all-time high levels. The surge is starting to pass through to consumer wallets.
The Consumer Price Index report released Wednesday showed that the prices consumers paid for roasted coffee rose 2.5% in January over the previous year. Meanwhile, instant coffee jumped a whopping 7.1%.
One global buyer and seller of coffee told Yahoo Finance that while it has yet to raise prices, it has no choice but to consider hiking them in the medium term.
"Coffee is in a perfect price storm," Andrea Illy, chairman of illy caffè, said in an interview Wednesday.
Illy points to climate issues at top world producers and exporters, including Vietnam and Brazil, where poor weather conditions impacted harvest. Brazil had its hottest year on record in 2024, with a record number of forest fires impacting its arabica coffee and sending prices higher. The US imports the second-highest amount of coffee per year behind the European Union, with top supply coming from Brazil, Colombia, and Vietnam.
“There is no alternative," Illy said of price increases. Of the surge in coffee futures, he added, "We don’t know how long it will last."
Other companies are considering price hikes as well. "If you look at 2025, we expect coffee inflation to continue to ramp. We will look to offset with pricing that is going into market early in the year," Sudhanshu Priyadarshi, CFO of Keurig Dr Pepper (KDP), said during the company's most recent earnings call in October.
Not all commercial coffee buyers are seeing a big impact, as it's common practice for big retailers to purchase large quantities at least a year in advance and lock in prices with futures contracts.
"Given our overall practices and hedging strategy, our year-over-year coffee price impact was minimal in Q1," Starbucks (SBUX) CFO Rachel Ruggeri said last month on the company's post-earnings conference call.
Part of the reason instant coffee saw a big pop in the CPI report is that the already-low price points make it easier for companies to raise them without giving consumers major sticker shock.
"Generally, instant coffee is a lot cheaper, and [retailers are] able to bump up that price and still be in the 'lot cheaper' category," said Shonali Paul, founder of Paul John Caffeine, a Florida-based coffee roaster.
Instant coffee uses robusta, a lower-tier bean compared to arabica, the kind used for restaurant chain coffee. Climate droughts in Vietnam last year impacted robusta production, sending prices 60% higher over the past year.
Rising shipping and labor costs have also weighed on the instant coffee market.
"With instant coffee, your margins are just so thin, it's why you see them take a hit on some of those other logistical costs so much sooner," Heather Perry, CEO of Klatch Coffee, told Yahoo Finance.
Source: finance.yahoo.com
