Brazil Drought Drives Arabica Prices Higher

The worst drought in Sao Paulo state in Brazil in 84 years could leave the 9 million person city of Sao Paulo without city water within 100 days according to a report on the Weather Channel.

Brazil’s largest city could run dry in less than 100 days if the city’s government doesn’t act, Brazil’s Public Ministry said. São Paulo, a city of more than 9 million people, is facing one of its worst water shortages in years, brought on by the worst drought to hit São Paulo state in 84 years, the Associated Press reports.

Drought in Brazil

Drought in Brazil

But the drought and its effects are not limited to the cities. Brazil produces a third of the coffee in the world and forty-four percent of the Arabica coffee. A Brazil drought drives Arabica prices higher. Arabic coffee futures are up on expectations of a smaller harvest in Brazil according to the Wall Street Journal.

Coffee futures prices surged more than 4% to the highest level in four months on Tuesday, as dry weather in Brazil raised worries that the world’s biggest grower would reduce the next harvest. Arabica-coffee prices have gained 89% this year as Brazil’s worst drought in decades hurt the development of coffee cherries, prompting growers, exporters and other industry members to slash their estimates for the current crop.

Parched Landscape in Brazil

Parched Landscape in Brazil

USDA Report

The USDA Coffee Update from June 2014 forecasted a rise in coffee prices due to the drought in Brazil.

World coffee production for 2014/15 is forecast to decline 1.5 million bags from the previous year to 148.7 million due primarily to a weather related shortfall in Brazil. However, the reduction is expected to be partially offset by rebounding production in Colombia and Central America. Global bean exports and consumption are forecast at record levels, drawing inventories down.

The good news for lovers of Colombian organic coffee brands is that Colombian production is likely to be up. The bad news is that coffee leaf rust, la roya, has ravaged crops in Central American nations like Nicaragua. The other bad news is that your cup of organic coffee is likely to be more expensive in the coming year. A large part of this is the fact that growers in Central America are spraying heavily to protect their plants against the leaf rust. This will remove substantial quantities of beans from the organic category.

Drought Damages Brazil Coffee Crop

Drought Damages Brazil Coffee Crop

When Will Retail Prices Rise?

There are already price increases by Starbucks and Folgers but these folks buy early and have prices set by contract in advance. However, as the supply of good quality Arabica coffee dwindles, prices are likely to go a lot higher in the next year. Although Colombian production is likely to be back up by 2 million bags to around 12 million bags, Brazil will likely see its production fall by 5 million bags to around 33 million. (These are 60 kg = 132 pound bags of coffee beans.) As Brazil drought drives Arabica prices higher it will likely drive the price of organic Arabica beans much higher. Maybe it is time to buy green organic Arabica beans from Colombia and stock up!


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