Coffee shortages brew in Brazil, climate crisis hits beans

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September 20, 2022 — Coffee stocks in South America are dwindling so much that supplies are expected to be dangerously low. World coffee prices are rising and will continue to do so amid market uncertainty due to supply shortages in Brazil. Coffee prices have been volatile in recent months, but the situation is expected to worsen further in the coming weeks as Brazilian coffee exports hold on to supplies to drive up prices.

“It happens because we have bullish and bearish factors happening at the same time,” said Guilherme Morya, senior economic analyst for Rabobank. FoodIngredientsFirst.

“On the upside, we have lower certified stocks (at ICE-NY), weather issues and lower supply, especially from major arabica producers, which include Brazil, Colombia and Honduras. On the downside, we have fears of recession, war and energy crisis in Europe, which always lead to uncertainties on demand,” he explains.

A persistent wave of weather is affecting the dynamics of the coffee market in South America. Brazil is facing severe droughts as the country waits for much-needed rains. On the other hand, the heavy rains of the La Niña climatic phenomenon affect coffee crops in Colombia.

Coffee prices have been volatile in recent months, but the situation is expected to worsen further in the coming weeks.Guatemala, Honduras and Nicaragua are all facing adverse weather conditions.

Vietnam – the world’s second-largest producer after Brazil, with Robusta coffee accounting for 97% of Vietnam’s total production – is also seeing declining stocks.

As the global appetite for robusta beans grows, supplies from Vietnam seem to be running out.

All of this is happening in a landscape of food inflation that affects most, if not all, commodities.

More volatility in the Brazilian market
Morya says Brazil is expected to harvest a higher crop for the current 2022/23 crop (2022 crop) given the on-cycle production, but the frost that occurred in 2021 has reduced production potential.

“Since March, many Brazilian producing regions have faced lower rainfall, which has led to additional yield losses (due to limited cherry filling), especially in Cerrado Mineiro, south of Minas Gerais. and in Alta Mogiana, northeast of São Paulo state,” he said. keep on going.

He explains that there would have been a high volume of coffee held by exporters due to the drop in production, but also how these exporters are keeping their stocks to wait for better prices.

“This is happening because well-capitalized farmers expect better prices. The local market always understands how much coffee will be sold and what will need to be renegotiated and delivered for the next crop year.”

“In addition, the local market is focusing on the 2023/24 Brazilian harvest. In August, an early bloom occurred in the southern regions of Minas Gerais and Alta Mogiana, which brought additional volatility to the market. Rainfall will be important not only for this early flowering but also for the upcoming flowering in Brazil. If Brazil has a good harvest and experiences good weather in the coming months, that should limit coffee prices,” he explains.

However, a lot of uncertainty and volatility is forecast for the coming months. Coffee giants like Starbucks, Lavazza and Costa will absorb the price increases and pass them on to the customer.

“Good weather in Brazil should cap coffee prices, otherwise prices should rise as global supply and demand are not comfortable.”

Climate hits coffee-growing regions: what next?
The rapid onset of climate change is, of course, at the root of the challenges felt within the coffee industry. The climate crisis shows no signs of abating, with adverse weather conditions threatening to further endanger growing conditions. Intense rains or prolonged dry spells make farming more difficult.

All of these market dynamics lead to spikes in coffee prices around the world. Coffee giants like Starbucks, Lavazza and Costa will absorb the price increases and pass them on to the customer. Meanwhile, these brands often have sustainability initiatives working with farmers on best farming practices in coffee growing regions. However, with the continued threat of Mother Nature looming large over the entire coffee growing industry, finding ways to combat the weather seems beyond the reach of industry leaders.

By Gaynor Selby

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