Coffee prices have surged to a 47-year high as 2024 draws to a close1. This spike raises important questions for retail investors. Could the rally in coffee prices create lucrative opportunities in stocks tied to the global coffee supply chain?
Current Market Trends
The volatility in coffee prices comes from a combination of climate impacts, supply-demand dynamics, and market trends. Arabica and Robusta are the two most popular coffee bean varieties, each with distinct characteristics that impact taste, cultivation, and market value.
Arabica is considered premium due to its superior flavor, making it more expensive and commonly used in specialty coffee blends. Robusta is more affordable and is commonly used in instant coffee, espresso blends, and commercial coffee products due to its intense flavor and crema-enhancing properties.
Your morning coffee may be hundreds of thousands of years old.
What are the current prices of Arabica and Robusta coffee beans?
As of December 10, 2024, the coffee futures contract traded on the Intercontinental Exchange (ICE) for arabica coffee beans has reached $3.34 per pound, marking a 78% increase year-to-date2.
This futures contract for arabica coffee is often used as a benchmark for tracking current prices and market trends for arabica coffee, the most widely consumed coffee type globally. It is followed by market participants such as traders, producers, and investors for price discovery and hedging purposes.
Robusta coffee prices have also surged, with futures trading around $5,173 per metric ton. The robusta coffee futures contract serves as the global benchmark for robusta coffee pricing.
How have coffee prices changed over the past year, and what's driving these changes?
Over the past year, coffee prices have soared. Arabic bean prices are up 75% in the past 12 months and robusta coffee prices are up over 100%.
Key factors include severe droughts in major coffee-producing regions like Brazil and Vietnam, with deforestation and wildfires in the Amazon exacerbating these conditions, leading to supply shortages and increased costs for consumers. The global coffee market remains tightly balanced, with consumption expected to outpace supply, leaving inventories low.
Future Outlook
What are the price forecasts for coffee in the coming years, particularly for 2025?
Analysts predict that coffee prices will stay high in the near term due to ongoing supply constraints and strong demand. However, as additional supplies enter the market, prices may begin to ease.
At the end of November, Citigroup raised its 2025 coffee price estimate from $2.38 to $2.80 per pound, expecting prices to normalize at $2.65 per pound in 20263.
What factors are likely to influence coffee prices in the near future?
Several factors are likely to influence coffee prices in the near future. Adverse weather conditions, such as droughts, frosts, and El Niño-driven climate changes, could disrupt production in major coffee-growing regions, thereby reducing yields and driving prices higher.
Global supply and demand dynamics also play a crucial role, with strong demand and limited supply tightening the market. Increased exports from major producers can deplete stockpiles, adding upward pressure on prices. Concerns about crop health, particularly whether coffee flowers will attach properly after rains, may impact future harvests4. Currency fluctuations, especially the Brazilian real against the U.S. dollar, can affect export pricing.
Alternatively, rising coffee production in other countries in response to higher prices could stabilize or lower prices over time. Geopolitical and economic conditions, including trade policies and global economic stability, also influence international coffee trade dynamics.
Investment Implications
How might coffee price trends affect coffee-related stocks?
Coffee price trends can influence company profitability, market sentiment, and long-term growth prospects. When coffee prices rise sharply, companies involved in coffee production, trading, and retail may face tighter margins due to increased input costs.
Coffee roasters and retailers might pass higher costs to consumers, potentially reducing demand and affecting sales volumes. Conversely, coffee producers and exporters could benefit from higher prices, boosting their revenues and stock valuations.
Investors typically watch price trends, weather forecasts, and geopolitical developments closely, as these factors drive market sentiment and affect coffee-related equities' short- and long-term prospects.
Are there any potential investment opportunities in the coffee market?
The coffee market offers several potential investment opportunities, driven by its growing global demand, supply chain dynamics, and evolving consumer preferences. Key opportunities include:
1. Coffee Producers and Exporters: Companies involved in coffee cultivation and export, such as Brazilian and Vietnamese coffee producers, may benefit from rising prices due to constrained supply and strong demand. Publicly listed producers and exporters are rare in North America since coffee cultivation typically occurs in tropical regions outside the U.S. and Canada.
2. Coffee Roasters and Retailers: Established coffee chains like Starbucks and Tim Hortons could see long-term growth driven by market expansion and premium product offerings, despite short-term margin pressures from high coffee prices.
3. Agricultural Input Suppliers: Firms that provide fertilizers, irrigation systems, and other agricultural supplies could see increased demand as coffee farmers invest in higher yields to capitalize on elevated prices. Nutrien Ltd. (NYSE: NTR) (TSX: NTR), The Mosaic Company (NYSE: MOS), Lindsay Corporation (NYSE: LNN), and AGCO Corporation (NYSE: AGCO) could be worth taking a closer look at.
4. Logistics and Supply Chain Companies: Shipping companies and logistics providers facilitating coffee exports might experience higher demand as global coffee trade volumes rise.
5. Coffee and Commodity ETFs: Investors seeking broader exposure can consider commodity-focused ETFs that track coffee futures or agricultural indexes.
6. Specialty Coffee Brands: Niche specialty coffee brands are often privately held, making crowdfunding and private equity investments common avenues for investors. Some may also become acquisition targets for larger industry players or pursue public listings as they scale.
Explore US consumer spending trends from 2020 to 2024 for key investment insights.
Market Fundamentals
What are the key supply and demand factors affecting coffee prices?
On the supply side, weather and climate conditions play a central role. Natural crop cycles also affect production, as coffee trees experience alternating high and low-yield years. Rising production costs, including fertilizers, labor, and fuel, can limit supply by discouraging farmers from expanding cultivation. Export policies, trade restrictions, and outbreaks of pests and diseases such as coffee leaf rust further tighten global supply.
On the demand side, growing consumption in emerging markets like China and India has boosted global demand for coffee. Changing consumer preferences toward specialty and premium coffee varieties have increased demand for higher-quality arabica beans.
Economic conditions also influence demand, with coffee consumption generally rising during periods of economic growth and slowing during recessions. Additionally, the availability and pricing of substitute beverages, such as tea or energy drinks, can impact consumer choices and overall coffee demand.
How do weather conditions in major producing countries like Brazil and Vietnam impact prices?
Brazil, the largest coffee producer, is highly susceptible to extreme weather events such as droughts, frosts, and unseasonal rains. Droughts reduce water availability, hindering crop growth and lowering harvest yields. Frosts, particularly during Brazil’s winter months, can damage coffee trees, causing long-term production declines.
Similarly, Vietnam, the world’s largest robusta coffee producer, faces weather challenges such as prolonged dry spells and heavy rains, which can delay harvesting and reduce bean quality.
Adverse weather in these countries creates supply shortages, triggering price spikes in the global market. Since coffee is a perennial crop with a multi-year growth cycle, weather-related losses can affect future harvests, causing extended periods of price volatility. Consequently, even the forecast of unfavorable weather can lead to speculative buying in the coffee futures market, driving prices upward.
How reliable are coffee futures markets in predicting future prices?
Coffee futures prices, particularly for Arabica and Robusta varieties, tend to be reasonably accurate predictors of future spot prices. According to the International Coffee Organization5, coffee futures prices generally maintain a stable long-term relationship with spot prices due to cointegration, indicating that futures prices react to the same market information as spot prices. This supports the idea that futures markets can serve as a reliable benchmark for forecasting future prices.
Who are the major players?
Starbucks Corporation (NASDAQ: SBUX)
Starbucks is the largest coffeehouse chain globally, operating approximately 40,000 stores worldwide. As of December 2024, its market capitalization is approximately $110 billion.
Since coffee is its primary commodity, Starbucks relies on futures contracts to manage price risks and stabilize its cost structure. If coffee futures markets are efficient and unbiased, as studies suggest, Starbucks can use them to hedge against volatile coffee prices, securing future supplies at predictable costs.
Keurig Dr Pepper Inc. (NASDAQ: KDP)
Keurig Dr Pepper is renowned for its K-Cup single-serve coffee pods and brewing systems. As of December 2024, the company's market capitalization is approximately $45 billion.
Keurig Dr Pepper (KDP) is a leading beverage company in North America, with annual revenue of approximately $15 billion. In 2023, its U.S. Coffee segment generated approximately $4.1 billion in net sales, accounting for about 28% of KDP's total annual revenue6.
The J.M. Smucker Co. (NYSE: SJM)
The J.M. Smucker Company owns several popular coffee brands, including Folgers, Café Bustelo, and the retail segment of Dunkin'. As of December 2024, the company's market capitalization is approximately $12 billion.
Coffee represents a significant portion of The J.M. Smucker Company's business. In the fiscal year ending April 30, 2023, the U.S. Retail Coffee segment generated $2.7 billion in net sales, accounting for approximately 32% of the company's total net sales of $8.5 billion7.
Restaurant Brands International Inc. (NYSE: QSR)
Restaurant Brands International is the parent company of Tim Hortons, a major coffee and donut chain. As of December 12, 2024, the company's market capitalization is approximately $22.5 billion.
In the second quarter of 2024, Tim Hortons accounted for nearly half of Restaurant Brands' total revenue, with same-store sales rising 4.6%8.
Dutch Bros Inc. (NYSE: BROS)
Dutch Bros is a rapidly expanding drive-through coffee chain that went public in September 20219.
Coffee is central to Dutch Bros' operations, with the majority of its revenue stemming from beverage sales. In 2023, the company reported a total revenue of $965.78 million, a 30.58% increase from the previous year10.
Farmer Brothers Co. (NASDAQ: FARM)
Farmer Brothers is a national coffee roaster and distributor serving the foodservice industry. As of December 2024, its market capitalization is approximately $41 million.
In the first quarter of fiscal 2025, Farmer Brothers reported net sales of $85.1 million, a 4% increase from the previous year. While the company offers a range of products, coffee remains its primary focus, contributing significantly to its revenue11.
Nestlé S.A. (OTC: NSRGY)
Nestlé S.A., headquartered in Switzerland, trades on U.S. over-the-counter markets. Its coffee portfolio includes brands like Nescafé and a partnership with Starbucks for retail products. As of December 12, 2024, Nestlé's market capitalization is approximately $222.68 billion.
Coffee is a significant component of Nestlé's business. In 2023, the coffee segment achieved high single-digit sales growth, driven by brands such as Nescafé, Nespresso, and Starbucks products12.
Nescafé alone reported annual sales of $11.6 billion as of December 2023, underscoring its importance within Nestlé's portfolio13.
Kraft Heinz (Nasdaq: KHC)
Kraft Heinz Co. is a leading global food and beverage company. Within its beverage segment, Kraft Heinz produces coffee products under brands like Maxwell House and Gevalia. In the third quarter of 2024, the coffee segment generated approximately $200 million in revenue, representing about 3.13%14 of the company's total revenue of $6.38 billion for that period15. This indicates that coffee constitutes a relatively small portion of Kraft Heinz's overall business.
Monster Beverage Corporation (NASDAQ: MNST)
Monster Beverage Corporation is renowned for its energy drinks and has diversified into coffee-infused beverages with its Java Monster line, which combines coffee and energy drink elements. Yet coffee-based beverages constitute a relatively small fraction of Monster Beverage's overall business.
Luckin Coffee Inc. (OTC: LKNCY)
Luckin Coffee Inc., based in China, operates an extensive network of stores and has demonstrated substantial growth. While its primary market is China, it trades over-the-counter in the U.S. In 2023, the company sold over 2 billion items, with freshly made beverages, mainly coffee, accounting for more than 1.9 billion cups16. Luckin plans to enter the U.S. market in 2025.
Future of Coffee Investing
The coffee market’s rally presents compelling investment opportunities across the supply chain. By understanding key market drivers like climate risks, supply-demand dynamics, and global trade policies, investors can identify stocks poised for growth.
Sources
Reuters. Coffee prices at 47-year high on Brazil crop concerns. November 29, 2024. https://www.reuters.com/markets/commodities/coffee-prices-47-year-high-brazil-crop-concerns-2024-11-29/
Bloomberg Terminal
Morningstar. Arabica Coffee at Highest Price Since 1977 on Supply Concerns. November 27, 2024. https://www.morningstar.com/news/dow-jones/202411273575/arabica-coffee-at-highest-price-since-1977-on-supply-concerns
NST. Arabica coffee prices hit highest in nearly half a century. November 28, 2024. https://www.nst.com.my/business/economy/2024/11/1140773/arabica-coffee-prices-hit-highest-nearly-half-century
ICC. The role of the coffee futures market in discovering prices for Latin American producers. September 2018. https://www.ico.org/documents/cy2017-18/icc-122-5e-price-discovery.pdf
Keurig Dr Pepper. Keurig Dr Pepper Reports Q4 2023 Results and Provides Outlook for 2024. February 22, 2024. https://news.keurigdrpepper.com/2024-02-22-Keurig-Dr-Pepper-Reports-Q4-2023-Results-and-Provides-Outlook-for-2024
World Coffee Portal. J.M. Smucker to expand retail coffee ranges after strong US sales. June 2023. https://www.worldcoffeeportal.com/Latest/News/2023/June/J-M-Smucker-to-expand-retail-coffee-ranges-after-s
Reuters. Restaurant Brands beats quarterly revenue estimates on Tim Hortons boost. August 8, 2024. https://www.reuters.com/business/retail-consumer/restaurant-brands-beats-quarterly-revenue-estimates-resilient-demand-2024-08-08
AP News. After humble beginnings, Oregon’s Dutch Bros launches IPO. September 15, 2021. https://apnews.com/article/business-oregon-united-states-initial-public-offerings-2ec1f6bf4edc06c38b6f75ef82a1124f
Dutch Bros. Supplemental Earnings Slides Q4 2023. February 21, 2024. https://s28.q4cdn.com/741412594/files/doc_financials/2023/q4/Q4-2023-Dutch-Bros-Investor-Presentation.pdf
Farmer Brothers Coffee Co. Farmer Brothers Coffee reports first quarter fiscal 2025 financial results. https://www.farmerbros.com/farmer-brothers-coffee-reports-first-quarter-fiscal-2025-financial-results/
World Coffee Portal. Nestlé upgrades 2023 sales outlook following strong half-year results. July 2023. https://www.worldcoffeeportal.com/Latest/News/2023/July/Nestle-upgrades-2023-sales-outlook-following-stron
CNBC Africa. How Nescafé Is Beating Everyone At Instant Coffee. February 2024. https://www.cnbcafrica.com/2024/how-nescafe-is-beating-everyone-at-instant-coffee
CSI Market. Description of Kraft Heinz Co's Business Segments. https://csimarket.com/stocks/segments.php?code=KHC
Kraft Heinz. Kraft Heinz Reports Third Quarter 2024 Results. October 30, 2024. https://ir.kraftheinzcompany.com/news/kraft-heinz-reports-third-quarter-2024-results/4cbab99c-a166-422e-b76b-507442e576c3
Luckin Coffee. Luckin Coffee, Inc. Q4 and FY2023 Earnings Conference Call Transcript. February 2024. https://investor.luckincoffee.com/static-files/98e3faaa-cd13-4511-a985-97fac4d34bb8