Cash-strapped US consumers should be deeply concerned about rising food inflation. It's 'stickier' than ever as coffee and cocoa prices surge.
Arabica coffee futures in New York hit a record high on Tuesday, driven by ongoing fears of a global supply crunch. Prices surged nearly 5% during the session, reaching their highest level in data dating back to 1972. At that time, coffee prices soared due to the disastrous Black Frost, which devastated Brazilian yields.
"Concerns over Brazil's 2025-26 arabica crop grew this week," said Steve Pollard, an analyst at Marex Group, as quoted by Bloomberg.
Pollard added, "Recent crop tours point to production in the mid-30 million bags," which would result in yet another supply shortfall.
Major agricultural trader Volcafe Ltd. recently slashed Brazil's arabica production outlook due to severe drought conditions. The trader projected that South America would produce just 34.4 million bags of arabica coffee in the next growing season, down 11 million bags from the prior September estimate, according to Bloomberg.
Volcafe also forecasted a global coffee production shortfall of 8.5 million bags for the 2025-26 season, marking the fifth consecutive year of deficits.
"We are currently experiencing a strong fundamental phase in the coffee market, which we expect to sustain the elevated price levels," said Viktoria Kuszak, a research associate at Sucden Financial.
In the cocoa market, the most active contract in New York jumped to the highest level in seven months over West Africa's dismal production outlook, yet another crop experiencing dwindling global supplies.
The most-active cocoa contract has jumped 58% to $10,500 per metric ton since late October, the highest since June. This comes as adverse weather dents supplies from top growers in Ivory Coast and Ghana.
"The outlook for the mid-crops have deteriorated in the past weeks," said Steve Wateridge, head of research at TRS by Expana, adding, "The weather conditions in next three months will determine whether we see further deterioration."
Broad food price trends via the Food and Agriculture Organization of the United Nations' Food Price Index, which tracks international prices of a basket of globally traded foods, show that prices have alarmingly re-accelerated this year.
Back to the cocoa market: The new surge in bean prices certainly sits well with famed commodity trader Pierre Andurand's bullish thesis earlier this year about worsening global supplies.
The big takeaway is that food inflation is very sticky despite the government saying otherwise.
