Daily Coffee Report 6/12/26
Daily coffee report
StoneX Coffee Team
- Coffee
Input Cost Shock Could Be the Hidden Force Reshaping the Global Coffee Market
By: Alexis Rubinstein, Managing Editor - Coffee Network
CoffeeNetwork (New York) - A new and less visible force is beginning to reshape the global coffee market—one that sits upstream from futures, weather, and trade flows, yet increasingly determines the long‑term direction of prices. Input cost inflation, driven by surging fertilizer, energy, and logistics expenses, is quietly redefining the economics of coffee production and raising fundamental questions about future supply.
While the market narrative has recently focused on the prospect of a record Brazilian crop and a potential global surplus, the reality on the farm tells a more complex story. Beneath improving supply expectations lies a structural cost shock that is already altering farmer behavior, compressing margins, and introducing new risks for the 2026/27 cycle and beyond.
At the core of the current shift is a sharp increase in agricultural input costs, particularly fertilizers. According to the World Bank’s latest Commodity Markets Outlook, global fertilizer prices are projected to rise by approximately 31% in 2026, marking one of the most significant cost increases since the 2022 energy crisis.
This surge is being driven by a combination of factors, most notably geopolitical disruptions in the Middle East. The Strait of Hormuz—a critical corridor for global energy and fertilizer trade—handles between one‑quarter and one‑third of global fertilizer flows, including a substantial share of nitrogen-based fertilizers such as urea.
As shipping bottlenecks intensify and conflict-related risk premiums rise, the cost of transporting fertilizers has increased dramatically. Freight rates, insurance costs, and fuel expenses have all surged, pushing up the landed price of fertilizers across import‑dependent regions.
At the same time, rising energy prices are compounding the problem. The World Bank projects that global energy prices will increase by roughly 24% in 2026, with natural gas—an essential input for fertilizer production—playing a central role in this inflationary cycle.
The result is a classic transmission effect: energy shocks raise fertilizer production costs, shipping disruptions inflate delivery expenses, and both pressures ultimately feed directly into farm‑level input costs.
In coffee production, fertilizers are not just another input—they are often the single largest variable cost and a key determinant of yield.
In Brazil, the world’s largest coffee producer, fertilizer expenses can account for 30–40% of total arabica production costs, depending on the production system and yield levels. [stonex.com]
In smallholder‑dominated origins such as Colombia, Central America, and parts of Africa, fertilizers remain equally critical. For many producers, especially those cultivating high‑yield or washed arabica systems, multiple nutrient applications are necessary to sustain productivity in nutrient‑depleted soils.
This dependency creates a high degree of vulnerability. When fertilizer prices rise sharply, farmers are forced into difficult decisions: reducing application rates, delaying purchases, switching to lower‑quality or organic substitutes, or, in more extreme cases, under‑fertilizing entire crop cycles.
Each of these responses has direct implications for yields, bean size, and cup quality, with effects that often emerge one or two seasons later.
The most important feature of the current input shock is that its effects are delayed—but powerful.
The International Coffee Organization has emphasized that the 2025/26 crop is largely insulated from fertilizer cost increases, as inputs were already applied before the latest price surge.
However, the risk shifts materially into the next production cycle. If high costs persists, the impact could be significant. Farmers may apply less fertilizer, which could lead to lower yields and reduce productivity.
The relationship between fertilizer use and output is well established. Rising phosphate and nitrogen prices have historically led to measurable declines in coffee yields, particularly in Brazil’s core producing regions. [opinion.cropgpt.ai]
This creates a paradox for the current market. While 2026 is expected to deliver strong production—especially in Brazil’s on‑year cycle—the seeds of potential constraint are already being planted for subsequent harvests.
For producers, the input shock is fundamentally a margin story.
Coffee prices, though still historically high, have begun to correct from the peaks of 2024–2025. At the same time, production costs remain elevated or are rising further due to fertilizers, energy, and labor.
This divergence creates a squeeze. Revenues are stabilizing or declining and costs are increasing or remaining elevated.
Smallholder farmers are particularly exposed. Fertilizer often represents a significant share of cash expenses, and limited access to credit restricts their ability to absorb price shocks or build inventory.
Over time, these pressures can erode both production capacity and resilience, raising the structural floor for coffee prices.
Even large, mechanized producers are not immune.
Brazil, despite its scale and efficiency, relies heavily on imported fertilizers. A significant share of its nutrient supply—particularly nitrogen-based fertilizers such as urea—originates from global markets, including the Middle East.
When the Brazilian real weakens against the U.S. dollar, the local cost of imported fertilizers rises even further, intensifying pressure on farm economics.
Perhaps the most important implication of the current input shock is that it is not entirely cyclical—it is structural.
Even before the latest surge, the cost base for coffee production had already reset higher following the 2021–2022 commodity shock. Fertilizer, energy, and labor costs have not returned to pre‑pandemic levels, creating a new baseline for global production costs.
In effect, the market may no longer revert to the low‑price environments seen in the 2010s, even if supply improves.
The global coffee market is often defined by cycles of surplus and deficit, driven by weather, production, and demand. Yet the current environment suggests a more complex dynamic is emerging.
On the surface, record production forecasts—particularly in Brazil—point toward a looser supply balance and softer prices in the near term. Beneath that surface, however, the cost of producing coffee is rising in a way that threatens to constrain future output.
The input cost shock, led by fertilizers and energy, is not immediately visible in production data. But it is already reshaping decision‑making at the farm level, altering input use, compressing margins, and planting the seeds for future supply tightness.
For market participants, the implication is clear: the next phase of the coffee cycle will not be determined by supply alone, but by the cost of sustaining that supply.
Alexis Rubinstein
- Coffee
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