Prices have to rise. We've hung on as long as we can and used up all of our stock and cover but now we are moving into new production and its a very different world.

On Fresh Coffee Shop Ltd's website we concentrate on the highest quality and standards of all aspects of our business and where we can control costs, we do to offer very good value. All of the factors affecting the new pricing are out of our control so we have little option other than to pass them on if we want to stay in business (and we do)...

See below for a detailed overview and as ever, thanks for being a loyal customer, we really appreciate you;

Arabica Coffee

In February 2025, Arabica futures break the quotation of 412.5 US$cents per pound to new historical highs. The rising trend intensified particularly in the last quarter of 2024, with a strong surge in prices from 250 US$ cents/lb to 412.5 US$ cents/lb in Feb 2025 reaching the highest level ever seen, driven by concerns over tight global supplies and uncertainties about the next crop in the main producer country, Brazil. Arabica crops from Central America and Colombia are also facing delays in reaching the market. The combination of low inventory levels and continued supply disruptions has made the market vulnerable to speculation, especially with the risk of adverse weather events in Brazil's coffee belt.

Robusta Coffee

Similarly, Robusta coffee prices have experienced significant increases. In Feb 2025, Robusta futures reached over £5,600 per tonne (from £4,600 per tonne in October 2024) levels not seen since the late 1970s.

There are other factors driving the prices up also:

HIGH ORIGIN DIFFERENTIALS

Typically, when the market prices are high, the differentials (i.e. the premium paid over the quoted prices for physical purchases for coffees from a particular location and quality grade) tend to narrow ((typically inversely correlated variables). However, in the current scenario, we are witnessing unusually high differentials. Product shortages in physical markets and supply retention phenomena have often led to conjunctures of rising differentials in parallel with rising financial prices. The weight of the origin differential on the price is highly variable and In certain market conditions,the differential can even reach 40%-50% of the price,making it decisive for the final price in physical markets.

HIGHER FREIGHT CHARGES

We are seeing much higher transportation costs for green coffee and roasted finished goods.

HIGHER ENERGY & PROCESSING COSTS

It just costs more to manufacture coffee...

SPECULATION

Commodity traders are speculating on coffee (and all other commodities both hard and soft) to drive prices up. Currently there are unprecedented speculation volume positions on both of our marketplaces.

 

Market overview - what will we expect to happen?

Globally, since 2021, the market has been characterized by three consecutive seasons of deficit, leading to a significant depletion of global stocks. More coffee is being drunk compared to the available stocks of green coffee.

The 24/25 season begins with the lowest stock level since the 01/02 season.

In a context of relatively rigid demand, the depletion of stocks is mainly attributed to the contraction in supply due to both endogenous and exogenous factors:

Unfavorable weather events;

Logistical, energy, and currency crises;

Speculation and withholding of supply.

These are particularly impactful phenomena in a market where production is relatively concentrated, and consumption areas are far from production regions. Main production declines: Brazil 21/22 -17%, Colombia 22/23 -9%, Vietnam 22/23 -10%, Indonesia 23/24 -24%. Areté's forecasts: potential production declines also in 24/25; Vietnam 24/25 -4.2%, Brazil 24/25 Robusta -2%.

Financial prices have been characterized by unprecedented inflationary trends and extraordinary volatility:

In the last four years, arabica and robusta prices have increased by 141% and 236% respectively, reaching record levels. Since the beginning of 2024, the increase have been 45% and 42%, respectively.

Product shortages in physical markets and supply retention phenomena have often led to situations of sustained and rising origin differentials, despite already having high contract prices.

The European Regulation on Deforestation (EUDR) is therefore set within an uncertain macroeconomic and market context, characterised by high inflation and volatility. The entry into force of the regulation and the uncertainty surrounding its application date have contributed to further fueling the already high level of uncertainty, impacting the market and prices, and contributing to the decline of EU stocks and to speculative movements. The EU market pays a premium for product compliance with the regulation (EUDR differential). In 2024, EUDR differentials fluctuated within a range of 1%-7% of the financial price of coffee. However, the regulation has not yet entered its application period, and the impact could be more pronounced, especially for origins with higher compliance costs and lower amounts of compliant or potentially compliant coffee.

In a context of supply shortages and exogenous shocks, the causal link between the entry into force of the regulation and the redistribution of EU import flows is still to be identified.

After several deficit marketing years, the market requires a rebuilding of stocks. The market rebalancing is primarily tied to the recovery of supply, as demand shows a high degree of rigidity. However, after several years of inflation, demand destruction factors may contribute to rebalancing.

As long as the market fundamentals have not reached a "safe" level, the market remains highly exposed to volatility.

For 2025: The partial and slow recovery of stocks represents a slight easing factor for prices. However, the potential increase in production remains highly exposed to climate risks, and a fourth consecutive deficit season cannot be ruled out;

In the EU, a deflationary trend is hindered by an "import-parity" driven up by the macroeconomic and logistical context, as well as the effects of the EUDR; The conditions for a market "normalization" are not yet in place.

In the medium-long term: After recent shocks, several seasons of surplus production are needed to rebuild stocks; A likely new structural break with increased volatility and “step” prices; The reduction of compliance costs over time may contribute to lowering EUDR differentials, which, however, will remain closely tied to the supply and demand dynamics of products compliant with the regulation.