Yes, Your Cup of Coffee Is a Lot More Expensive
Growing up, we were always told that breakfast was the most important meal of the day. But for millions of Americans, including yours truly, our morning routine eschews the more nutritional fare of yogurt, eggs or heaven forbid, a piece of fruit. Instead, our routine involves a more singular focus – coffee. Lots of coffee! And woe to any family member, friend or work colleague who attempts to engage us before we delight in that first cup of the day.
According to the National Coffee Association, this year, Americans will consume roughly 3.5 billion pounds of coffee. That translates to about 517 million cups per day. Drive Research notes that 73% of U.S. adults drink at least one cup of coffee every day. Personally, I don’t see how the other 27% survives the day. 36% drink three to five cups a day. 93% drink coffee at least once per week.
There are two main varietals of coffee bean that drive the global consumer marketplace. The first is the Arabica bean, which provides a smooth, rich and aromatic flavor. Its taste has hints of chocolate, caramel, nuts and even fruit. Arabica beans are typically grown at higher elevations along the world’s equatorial regions. Brazil is the world’s largest Arabica producer followed by Ethiopia, Honduras and Peru. Among coffee aficionados, it is perceived as delivering a higher quality and better tasting cup of coffee. According to the U.S. International Trade Commission, Arabica beans comprise between 60-70% of the world’s total coffee bean production.
The Robusta bean, by contrast, produces a stronger, fuller-bodied cup of coffee. It has a bitter, earthy flavor but has twice the caffeine content of the Arabica. It is typically grown in warmer, lower altitude climates. Vietnam is the largest producer of the Robusta followed by Brazil, Indonesia and India.
But we coffee drinkers have likely noticed the price for our preferred drink steadily rise over the past few years. In January 2023, the price for Arabica was trading on the global markets at $200.70 per bag. One bag weighs roughly 203 pounds. Since then, its price has risen to $419.50 per bag, an increase of 109%.
The price for Robusta beans has soared even higher. In January 2023, the price for Robusta was trading at $1,806 per ton. Today, its price is $5,567 per ton, an increase of 208%.
According to a study by Toast, the average price for a cup of regular coffee at a quick-serve restaurant or coffee shop is $3.08. For a latte, the price jumps to $5.64. The state with the highest average price for your cup of coffee is Hawaii at $4.98. For you latte drinkers, your average price in Hawaii is $6.69. The second highest state is California at $3.88.
The cheapest state for a cup of coffee is Nebraska ($2.12), followed by Montana ($2.56). Locally, Illinois ranks No. 24 ($3.07) while Iowa ranks No. 44 ($2.70).
But why are coffee prices rising so high and so fast? According to industry experts, a major factor has been a potent combination of high temperatures and droughts in the key global regions of production. This, along with the fact the world’s supply of coffee beans comes from relatively few regions. Adverse weather in Brazil and Vietnam have had significant impact. Combined, these two coffee-producing powerhouses account for about 56% of the world’s total production.
Global demand for coffee has also been steadily rising. This increase in consumption is being led by China and its massive population of 1.4 billion people. Much of China’s young, middle-class population have been replacing the nation’s traditional drink of tea with coffee.
In 2023, China overtook the U.S. as the country with the most brand-name coffee shops in the world. Starbucks, Tim Hortons, Costa Coffee and Dunkin’ Donuts are just a few of the many global brands expanding into China. According to data from the World Coffee Portal, the number of brand-name coffee outlets in China grew 58% last year to nearly 50,000. The U.S., by comparison, has about 40,000 name-brand outlets.
For us die-hard coffee drinkers, the skyrocketing price of beans has left us with few options. Either munch on used coffee grounds or reduce our daily intake. Surprisingly, the coffee ground option doesn’t sound that bad.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.
