A particularly poor crop at the largest coffee producer In the world, the price of a cup of coffee is threatening to rise. Farmers in Brazil are dealing with the consequences of last year’s crazy weather, when the plantations first faced drought and then cold. Some say that the crop of luxury Arabica coffee beans will reach less than half of the amount that could have reached in a good year.
Some of this bad news is already being priced into investors, coffee companies and drinkers of the stimulant drink. Bad weather in Brazil helped push coffee futures to multi-year highs in 2021, one of a chain of disruptions to world commodity markets. But if this year’s crop is even smaller than feared, it could exacerbate international supply shortages and help drive new price increases.
Brazil influences the world coffee market because it is the largest exporter in the world, by a considerable margin. The disruption is more serious because the production of Arabica coffee in Brazil occurs in two-year cycles, and in years that end in even numbers the crop is larger. Meanwhile, bad weather also hit the coffee industry in neighboring Colombia, another important producer.
After remaining largely unchanged for years, household bills for coffee have soared in the past year or so, U.S. consumer price data show. The coffee industry, like others, has struggled with both supply chain issues and high prices.
“Great Crisis”
Arabica prices around the world are expected to rise once estimates of this year’s crop in Brazil are finalized, said Thiago Cazarini, a coffee trader from Cazarini Trading Co.. While concerns about the global economy have recently weighed on coffee prices, “it’s very dangerous to leave behind the fundamentals,” he said.
Analysts previously predicted that the Arabica crop in Brazil for the 12 months starting in July might be similar to the record set two years earlier of 48.7 million bags of coffee, each weighing 60 kilos. But the final figure will probably be much lower. An early official forecast from Brazil predicts a harvest of only 35.7 million bags.
“It’s a big crisis for us,” said Jose Marcos Magellas, coffee farmer and president of the Minasul coffee cooperative. The cooperative’s more than 9,000 members are obligated to supply a certain amount of coffee each season, but this year the cooperative is allowing them to supply half of the promised quantity.
The cooperative expects to receive less than a million bags of coffee, down from 2.2 million in 2020. “There are growers who don’t even have half of what we ask for,” said Magellas.
Edmar Laitano, 57 years old, has been in the coffee business all his life, following his father. He had a business helping other growers to export, and a farm in Minas Gerais, the country where about half of Brazil’s Arabica grows.
In a good year, Latiano said he grew enough coffee to fill 4,000 sacks. He said that this year he expects half that amount.
An increase in price is expected in the coming months
Market watchers point to other signs of coffee demand outstripping supply, which could drive prices up further. The International Coffee Organization says global consumption will outpace production for the second year in a row, while Fitch Solutions said stocks at Intercontinental Exchange warehouses were at their lowest level this century.
The decline in supply and the decline in coffee stocks indicate that prices will be higher in the next three to six months, said Ole Hansen, director of commodity strategy at Saxo Bank.
Coffee futures surged in 2021 and earlier this year, hitting a near 10-year high of $2.58 a pound in February. Since then they have fallen slightly, to a price of about 2.23 per pound, but remain high compared to recent years.
Fitch does not believe that prices will rise further, but say that a decrease in exports from Brazil, along with the lack of inventory in warehouses, will keep prices high. The company recently raised its forecast for the price of Arabica to $2.15 per pound by the end of the year, slightly cheaper than the current price level.