Coffee prices fell to their lowest level in a year as drought relief comes to Brazil. The Wall Street Journal writes about expected weather and how coffee sinks to a one year low.
Coffee prices tumbled to the lowest level in nearly a year, as investors recalibrated their expectations for supplies amid signs that weather conditions in Brazil support a healthy harvest.
Arabica coffee for March delivery fell 8.20 cents, or 4.9%, to settle at $1.5940 a pound on the ICE Futures U.S. exchange. This was the lowest close since Feb. 18, 2014, and the biggest one-day percentage drop since Nov. 20.
The weather in Brazil has been better than some investors had expected. Intermittent rainfall is keeping coffee trees hydrated and on track for a healthy crop, said James Cordier, president of Liberty Trading Group in Tampa, Fla. Brazil is the source of roughly half of the world’s arabica beans, a type of coffee prized for its mild flavor.
Brazil is now “getting showers every day or every other day, which is quite normal for this time of year,” Mr. Cordier said. “The idea that the coffee crop would be weighed down by dry weather conditions is just incorrect,” he said. “The drought is far behind us, and the trees have recovered quite well.”
In short, rain Brazil means cheaper coffee. Brazil is the big dog in the coffee world and when drought damaged crops last year prices went up globally.
End of the Downturn, or Not
According a United States Department of Agriculture report global coffee production forecast for the 2014/15 growing season is that coffee production will be down 2.7 million bags compared to the previous growing season. This is because increases in production elsewhere were more than offset by a loss of 5 to 10 million bags in Brazil because of the draught. A bag of coffee weights 69 kg or 152 pounds. But, now the news from Brazil is that it is raining every day as it should during this time of the year. But according a report from Reuters it is not clear that all crops are safe or that drinking water for city residents will be plentiful with a good Brazil water supply.
Southeastern Brazil is getting some rainfall a year after a record drought started, but not enough to eliminate worries about electricity rationing, drinking-water shortages or another season of damaged export crops, meteorologists said.
Record-high temperatures and the most severe drought in at least 80 years punished southeastern Brazil last year, a region accounting for 60 percent of the country’s gross domestic product. Lingering climate challenges could threaten a tepid economic recovery.
Private weather forecaster Somar warned of irregular rainfall in the center-west soy belt as well as the southeast throughout the month as an atmospheric blockage prevents a cold front from advancing over the key producing regions in the world’s largest exporter of coffee, sugar, soy and beef.
That is especially worrisome in the southeastern state of Minas Gerais, which produces half of Brazil’s coffee. Drought there last year wiped out as much as a third of the crop in some areas, causing global Arabica prices to rise 50 percent over the year even as most other commodity markets tumbled.
As with all agricultural endeavors the farmer simply needs to plant and tend his crops and hope that the weather cooperates. While a drought means reduced production a rain in Brazil means cheaper coffee. And for us at Buy Organic Coffee that means more healthy organic coffee as well.