Coffee aficionados beware. Your cup of java may cost you 30-40% more in a few months’ time so now’s the time to stock up on your favorite beans.
The dry temperatures and the lack of rain at a critical time has hurt coffee crops in Brazil, the world’s top coffee bean grower and has sent prices of the commodity zooming to record high levels. Fluctuations in the Brazilian currency due to a political crisis have also helped push up prices by discouraging farmers from exporting to global markets.
Coffee prices rose over nine percent on Tuesday with Arabica coffee up 9.1 points in one day for March delivery, the largest one day increase since November 2004.
So far 5% of the Brazilian crop has been lost his year sending the price up 38 per cent to a 13-month high of $1.5265 per pound
The UBS Coffee sub index was trading up 9% yesterday and is up over 12% in early trading today. Analysts expect that the major coffee chains like Starbucks and Green Mountain that stock up on the beans in advance, won’t have to pass on the increase to consumers for another 2-3 months.
Vietnam Drought Hurts Robusta Beans
On the other side of the globe, a similar situation has caught up with coffee production in Vietnam, the world’s biggest producer of robusta beans, with analysts estimating that output will contract by up to 30 per cent in the next marketing year which runs through September 2017.
Vietnam is experiencing one of its worst droughts in 90 years and one of the hardest-hit areas is the Central Highlands, where most of the country’s 1.5 million acres of coffee trees grow.
According to Luong Van Tu, the chairman of the Vietnam Coffee and Cocoa Association, the current drought has killed nearly 250,000 acres of coffee trees.
Vietnam grows primarily robusta beans, a variety that is relatively bitter and is used mainly in instant coffee, but it also produces some of the higher-priced Arabica. The July robusta contract—the most actively traded contract—was up at $1,764 a metric ton Wednesday, hitting a six-month high. However, the contract remains below its 2015 highs, due to the impact of currency devaluations in Brazil last year, which resulted in record exports of coffee onto world markets.
Coffee analysts believe that the dry weather conditions in Vietnam may not end up harming this year’s coffee crop as much as anticipated. Rains have already begun in the area and the beans are picked once a year around December with most of the crop exported from January to June. The trees generally flower in April with small berries forming during the spring so the impact on the trees’ yields is only now being felt. However, if, indeed, the heavy rains arrive now it could cause the green berries to fall prematurely causing an even greater lose to the coffee industry.
Traders are forecasting that Vietnam’s robusta production will drop to a four-year low next season of 1.5 million tons while the harvest in Indonesia, the third-largest producer and suffering from the same weather conditions, will slide 10 percent to 570,000 tons.