Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Coffee Prices Hit Seven-Year High on Brazil Frost Fears
Transcript
- Lucas: Arabica coffee is having a moment. Futures are up nearly five percent in the last five days, and we're looking at prices we haven't seen since early 2019. Luna: That's a big move for a market that's been range-bound for a while. What's driving it? Lucas: It's almost entirely weather-driven. Over the weekend, forecast models started showing a late-season frost risk for Brazil's Minas Gerais region — that's the heart of arabica production in the country, responsible for roughly half of their arabica output. Luna: Late June isn't typical frost season there, right? Usually you'd see that risk peak in July and August. Lucas: Exactly. That's part of why the market is reacting so sharply. An early frost, or even a credible threat of one, can damage cherries that are still maturing on the tree. Brazil's 2026-2027 crop is already expected to be smaller because it's the off-year in the biennial cycle — arabica trees alternate between high and low production years — and now you've got weather risk on top of that. Luna: So the supply outlook was already tightening. The frost risk is just adding fuel. Lucas: Right. And the positioning data tells the same story. The latest Commitment of Traders report shows hedge funds have built the largest net-long position in arabica futures in two years. That's a lot of speculative money betting prices go higher. Luna: I remember a few episodes back we talked about how coffee demand is pretty inelastic — people keep buying their morning cup even when prices rise. Does that play into the price action here? Lucas: It does. Global coffee demand grows at about one and a half to two percent per year, and it barely flinches on price. So when supply gets squeezed, the adjustment has to come from price, not demand destruction. That's why you see these spikes. Luna: But there's a twist in this market, right? Robusta isn't following arabica higher. Lucas: That's the interesting part. Robusta futures are actually flat this week. And that divergence tells you this frost risk is very specific to arabica growing regions. Robusta is mostly grown in Vietnam and Indonesia, so a Brazil frost doesn't threaten those crops. Luna: So roasters who use a lot of arabica — like the specialty coffee shops — they're feeling the pinch. But the instant coffee guys who use robusta are fine for now. Lucas: Exactly. And we're already seeing some roasters pass through higher costs. A few regional chains in the U.S. have quietly raised prices by 25 to 50 cents per cup over the last month. Not enough to make headlines, but it's happening. Luna: And if the frost materializes, those price hikes could get bigger? Lucas: Absolutely. The actual frost window is supposed to be the next three to five nights. If temperatures dip below freezing in Minas Gerais, we could see the arabica contract gap up another five to ten percent easily. If the frost misses, the market could give back a lot of this week's gains just as fast. Luna: So it's really a binary event for the next few days. Lucas: It is. And that's what makes commodities fascinating — sometimes the entire price action for a year gets decided in one week of weather. Luna: Speaking of things that keep this show running, I want to mention something quickly. Lucas and I do this podcast independently, no corporate backing, no advertisers pushing their agenda. Lucas: Yeah, we keep it that way on purpose. And a small group of listeners helps make it possible by chipping in through buy me a coffee dot com slash fexingo. It's not a big ask, just a heads-up that if you find value in breaking down these markets, that's what keeps the lights on. Luna: Exactly. No pressure, just a note of gratitude to those who already do. It matters. Lucas: Alright, back to coffee. One more data point I want to flag — the U.S. dollar has been weakening this month, which generally supports dollar-denominated commodities like coffee. That's a background tailwind, not the main story, but it amplifies the move. Luna: And the broader commodity index? We've seen crude oil and copper sell off this week. Coffee is really bucking the trend. Lucas: It is. And that's because coffee's price driver right now is entirely idiosyncratic — it's about that specific frost risk in a specific region. It's not macro demand or global growth fears. That's why it can rally while oil drops five percent. Luna: So for listeners who follow coffee as a consumer — should they be stocking up on beans now or waiting? Lucas: Tough call. If the frost hits, retail prices will follow wholesale with a lag of maybe a few weeks. Roasters will have to raise prices. If the frost misses, wholesale prices could drop back to where they were a week ago, and retail might not come down immediately — roasters tend to lag on the way down. Luna: So the safe bet is if you see a good price on a bag you like, buy it now. Lucas: That's what I'd do. Especially for single-origin arabica from Brazil. Those beans are going to get more expensive if the weather turns. Luna: And if the frost doesn't happen, you just have some excellent coffee in your pantry. Not a bad outcome either. Lucas: Exactly. We'll keep an eye on the forecasts and check in next week to see how it played out.