Will Coffee Prices Rise Further... Arabica Bean Production Halved Due to Brazil Drought

Poor Harvest Forecast for Main Arabica Variety
Causes Include Increased Demand, Inflation, and Supply Disruptions

There is a forecast that coffee prices will rise further due to a decrease in Brazil's harvest.
[Image source=Pixabay]

[Asia Economy Reporter Kim Jung-wan] Due to abnormal weather conditions, Brazil, the largest coffee exporter, is experiencing a decline in harvest volume, leading to forecasts that coffee prices may rise further.

On the 21st (local time), the U.S. Wall Street Journal (WSJ) reported that Brazilian coffee farms are suffering from droughts and frost, and the production of premium Arabica coffee beans is expected to be only half compared to bumper harvest periods.

The forecast of reduced coffee production in Brazil has already been reflected in market prices, with coffee futures prices last year reaching their highest levels in years. WSJ predicted that if this year's crop is smaller than expected, it could trigger a new price increase.

Brazilian coffee harvests are especially larger in even-numbered years on a biennial cycle, so if this year's harvest is low, the impact on coffee prices will inevitably be greater.

The poor coffee crop in Brazil this year is due to the combination of drought and frost last year. Additionally, Colombia, a neighboring country of Brazil and another major coffee exporter, is also experiencing poor coffee crops this year due to adverse weather conditions.

Experts forecast that the price of the Arabica variety will rise once more around the time when Brazil's coffee harvest forecast for this year is finalized.

They had once expected that from July for 12 months, Brazil's Arabica coffee harvest would reach 48.7 million bags (1 bag = 132 pounds, 60 kg), the highest level two years ago, but recently have issued much lower estimates.

Brazil announced earlier this year that its coffee harvest would be only 35.7 million bags this year.

The Arabica variety accounts for about 70% of the global coffee market. Most coffee produced in East Africa, Asia, and South America belongs to this variety. Brazil is known to account for 30% of the world's total Arabica production.

Besides the poor coffee harvests in Brazil and other countries, rapidly increasing coffee demand and inflation are also fueling coffee price increases. Supply chain disruptions caused by the COVID-19 pandemic have also contributed to the rise in coffee prices.

On the other hand, concerns about the global economic downturn have acted as a factor restraining coffee price increases.

Tiago Cazarini, CEO of Cazarini Trading Company in Brazil, said, "Ignoring economic fundamentals is risky (for coffee price analysis)."

In the international commodity market, Arabica coffee futures were under $1 per pound in 2020 but have been trading between $2 and $2.5 per pound this year.