Brazil is having its worst drought in seven decades. The result for the coffee market is less and higher priced coffee. In late November of 2024 the NYMEX coffee price topped $3.30 a pound, up from $2.50 in October and $1.40 in October of 2023! Although the price of coffee has more than doubled that does not mean that there is less than half as much coffee available. Rather it means that the market is bidding up the price to make sure that individual buyers get as much coffee as they want. This situation is bad news for coffee farmers in Brazil but good news for coffee growers in Central America, Mexico, Hawaii, and parts of South America not affected by the drought.
Pacific Weather Patterns and the Climate in the Americas
The weather has turned dry in large parts of Brazil due to La Niña. La Niña is the opposite Pacific Ocean weather pattern from El Niño. Cold water rises to the surface along the west coast of South America. This happens because strong equatorial winds drive warm air and water west across the Pacific Ocean towards Indonesia. El Niño and La Niña do not limit their climatic effects to the Pacific Ocean, however. North Americans are familiar with the torrential rains across the western US states and storms across the Midwest with El Niño. That part of the oscillating pattern that concerns us in this instance is that La Niña causes much less rain in the coffee producing regions of Brazil and much more rain across the Amazon regions of Colombia and Venezuela. However, while rainfall can be plentiful in the Colombian Cafetero, it generally helps produce good harvests as it is typically not so excessive.
Where Is Coffee Coming From?
Brazil and Vietnam are still the leading coffee producers despite drought conditions in both nations. However, coffee production in both nations could well be off by twenty-five to thirty percent in each case.. In an average year Brazil produces about 39% of the world’s coffee and Vietnam produces about 17%. The next leading producer is Colombia with 7%. If there is a 30% reduction in production from Brazil and Vietnam that means 57% x 30% = 16.8% less coffee produced in a given year. That is what is driving the price of coffee to levels not seen in fifty years. The previous highest coffee price was in 1976 at $3.13 a pound, which gives us an idea of how unusual this situation is.
How Long Will the Price of Coffee Stay This High?
The current high price of coffee has to do with the current relative scarcity compared to market demand. Until climate conditions improve in Brazil and Vietnam and another harvest ensues, we can expect to see the market price of a pound of coffee to stay historically high. How much this will affect the price of your cup of coffee is a different matter. What the coffee farmer receives for a pound of green coffee beans is a small fraction of what we pay for a espresso, latte, or cappuccino at our local coffee shop or what we pay for a bag of whole bean roasted coffee at the grocery store. As such, we may see a few percent increase at the consumer level but nothing like the doubling of price for bags of coffee fresh from the harvest.
Coffee Price Chart Courtesy of Business Insider