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Dryness in Brazil May Raise Coffee Prices

Dryness in Brazil May Raise Coffee Prices

Climate and Crops

January 25, 2009

Your morning cup of Joe may start to cost more. Coffee production is likely to decline across Brazil due to a combination of recent dryness, the credit crunch, and biennial growth cycle. In an increasingly tough economic time, these factors are likely to urge prices higher.

The Brazilian government predicts that the country will harvest 39.2 million 132-pound sacks of coffee beans this year, a drop of 16.2% from 2008.

Over the past 30 days, major coffee growing regions in western Mato Grosso and eastern Rondonia have only seen about 75% of normal rainfall. In the past two weeks, areas in western Minas Gerias, where nearly 50% of Brazilian coffee is produced, have received only half of normal rainfall. The tiny province of Espirito Santo, which accounts for 25% of the coffee crop, saw above normal rainfall earlier this month. However, even that area has turned much drier over the past one to two weeks.

Nevertheless, the credit crunch has been forcing many coffee growers to forgo purchasing sufficient amounts of fertilizer. When enough fertilizer cannot be applied to the coffee plants, disease is more easily spread and yields are reduced. Unfortunately, the timing of this economic crisis is very poor as Brazil coffee is in the midst of a slower growth cycle that typically occurs every other year.

Brazil, the world’s largest producer of Arabica beans, is expected to see a 24% reduction in their harvest of this variety. Furthermore, the country is only second to Vietnam in robusta beans used by Nestle and Kraft to make instant coffee. While robusta may not be as severely affected, a five percent decline in production is still expected. With the drop in production, coffee prices are likely to rise. Currently the price of Brazilian coffee is around $1.18 per pound and is expected to trade between $1.25 and $1.35 in the coming months.

While it is unknown when the economy will recover, Mother Nature will be providing some beneficial rain to most coffee regions over the next week. Areas in Mato Grosso, Rondonia, and western Minas Gerias may see 3 to 6” of rain by next Wednesday, with isolated higher amounts. In comparison, only 2 to 4” fell in these provinces in the past 14 days.