An Update on Coffee Prices

I recently received an email from an customer who purchases from us online, asking us about availability of coffee from Central America and what our prices would be in the future, considering that tariffs are about to take effect. Last week I was speaking with another local roaster about the ever increasing coffee prices and he said something to the effect of “this isn’t fun anymore.” Having to raise prices repeatedly for our wholesale partners isn’t easy, and it certainly isn’t fun, but I find myself having to make the decision to do so again in order to keep up with the rising costs of coffee, and in anticipation of the additional impact of tariffs being added on top of already historically high coffee prices.

Perhaps another increase is not surprising or unexpected, after all, prices on everything have been going up over the past few years. But I feel led to share a little more insight with you as our wholesale partners into what our situation is and give you a better picture of why we are in the position we find ourselves. Here’s what I wrote in response to our online customer asking about coffee prices:

“Hi John,

Thanks for following up and emailing me. Coffee is crazy expensive right now, and the tariffs haven't gone into effect yet on any of the coffee I'm roasting currently. The tariffs are going to hit coffee that ships or hasn't reached port after a certain date in April, I didn't pay too close attention to it because it didn't affect any of my buying decisions. 

Here is a link to the chart of the nearest coffee futures contract, which is what our pricing is based on. We pay a differential that varies based on the grade, quality, and market conditions but is tied to that futures price.  So a cheaper coffee from Brazil is that nearest futures price plus a certain amount, and coffee from a more expensive country like Costa Rica is sold at a much higher differential, but tied to that same futures price. The tariffs are actually only a part of the problem in terms of total cost, if you scroll through the chart and look back over the past several decades you can see where we are at now and that it's at an all time high. 

The dry weather in Brazil in recent months caused a lot of problems with the coffee trees, which of course lowers production, which in turn drives prices. The exchange ratio of the Brazilian Real to the USD is also a factor, when the Real is strong it discourages selling and increases pricing. I'm mentioning Brazil so much because they produce about 60% of the world's Arabica coffee, so Brazil has the largest market impact, followed by Colombia. 

The other factor in all of this are the investors and speculators. Much of the pricing is driven by funds investing in the coffee futures, driving up the contract prices and in turn our prices. When "Liberation Day' happened there was a big drop in the pricing, about .50 a pound, because investors were pulling their money out of all markets, including coffee. That's climbed right back up again over the past month.

So far the impact on us has been minimized by the fact that we are a small volume roaster, so the massive price increases don't have as dramatic an impact on us as they could on a larger roaster. We don't have to come up with as much cash to make our purchases because we aren't buying as much coffee at a time. We also have a fair amount of coffee reserved, meaning that it is contracted and being stored at our brokers warehouses, ready for us to purchase when needed. I "book" coffee based on availability and pricing, always watching the market to see if there is a favorable time to lock in supply at a good price, while also knowing that when availability becomes scarce, you have less ability to wait for a turn in the market. 

We use coffee from about 20 different countries, so we have a little more complex inventory to maintain, but as of now we don't have any problems getting the coffee, the challenge is the cost. Over the upcoming weeks and months I'll need to begin securing coffee that may only be available once or twice a year and our cost for these will dramatically increase to account for the recent price increases. Over the past three years we've made several price increases, trying to keep them modest and in line with the market, but our costs on some of these coffees are more than 200% higher than they were a few years ago, so when the coffee that I own well below the market is gone, I'll have to replace it with the higher priced coffee, assuming the market stays elevated.

Until recently, the most expensive coffee I've ever purchased was an Ethiopia Natural Anaerobic Grade One, a phenomenal coffee that was a bit risky to purchase because of the high cost compared to how long it might take to sell it. This was in August of 2024, and right now the "cheap" Brazilian coffee I use the most for blends and dark roasts, a good but basic coffee is more expensive than that, and it's nothing special. 

In some ways it's less about how much money you're making on the coffee but more about how quickly you can turn it because you need the cash to be able to keep buying more greens (unroasted coffee). There is a chance that the economy will slow down enough to cool demand and the price could drop out of the coffee market, that was supposed to happen a year or so ago according to historical trends, but it's just stayed high. Our brokers won't allow us to book long positions because they are thinking that prices could plummet and they don't want to be stuck with contracts at high prices that roasters will skip out on. I'm hoping that prices will drop before I begin having to "book long" again because it will be significantly higher than what my current costs are.

So, to answer your question as precisely as I can: I don't really know yet what our coffee will cost over the summer and how the global warming trend will affect prices and production negatively long term. If the economy goes into a recession and demand decreases, and the speculators pull out, we could be at the peak of prices right now, but we could also see (and I'm more inclined to think this is the case) that the price will remain around where it is, slowly increasing little by little, but brought down on specific news of a tariff deal, the Real weakening, or lots of rainfall in Brazil. The key for me is to find the best opportunity to reserve without waiting so long that the coffee isn't available anymore, while maintaining our position in the coffee market, positive cash flow, and not driving our customers away. 

I hope that helps, although it isn't very specific in terms of expected actual changes to our coffee prices. I do anticipate an increase, but probably not more than 10%, unless the futures market breaks through to a new record high and stays there long enough that I have to buy at those prices. Given all that's happening I'm actually fairly confident in our position: we're still buying mostly reserved coffee at well below market prices, but it remains to see how much cash I'll be able to retain coming into the spot market for coffee in the upcoming weeks.”

We are currently buying some of our coffee that was reserved last year at lower prices, but some is at current market prices, and as we use up the reserved coffee our overall costs will rise even further, unless the pricing trend changes. Tariffs have now gone into effect and that adds another 10% on top of the already higher prices.

One other factor is the complexity of our coffee: for example Mack the Knife has coffee from six different countries in it, so we have to stock all of those coffees, which requires more cash flow to keep them in stock. We could start changing our formulas, reducing the complexity, reducing our offerings, or buying lower quality coffee, but that’s not what we’re about. The number one feedback we get from our customers is that Coffee on the Porch is the best coffee they’ve ever had. We know a lot of that has to do with the unique, complex blends that Dan created several years ago as a hobbyist and we are committed to continuing that tradition.

Please feel free to reach out to me with any questions or concerns, we are hoping that this increase will be a temporary one and that coffee commodity prices will stabilize and cool over the upcoming months so that we can return to a lower production price point. Thank you as always for your business and your partnership, we greatly appreciate the opportunity to share our coffee with you and to the communities you serve.