Wild weather in biggest coffee exporter sparks price surge

Coffee beans are piled into a bin to be cleaned at a farm in Guaxupe, Minas Gerais state, Brazil, on June 2, 2021.

The world's biggest coffee supplier is facing some of the coldest weather in more than 25 years, dimming hopes for the harvest and threatening to raise prices for the popular beverage.

Temperatures in Brazil's coffee-growing regions fell below 32 degrees Fahrenheit for hours on Tuesday, with southern Minas Gerais the coldest since 1994, according to Rural Clima. Damages to coffee as well as some orange groves was "very significant," said Marco Antonio dos Santos, a meteorologist at Rural Clima in Valinhos. Another cold front is expected late next week.

Futures for arabica beans in New York jumped Tuesday as much as 7.7% to the highest since 2016, with traded volume surging as well. Prices extended gains Wednesday, adding as much as 3.5%.

The frost is dealing growers a second blow after a severe drought left fields parched and depleted water reservoirs needed for irrigation. On top of that, the drought may worsen, with forecasts for a return of La Nina weather patterns that delay rainfall in the region. The series of misfortunes may leave consumers paying higher prices at cafes and at the supermarkets.

Francisco Cesar Di Giacomo, a farmer in Sao Goncalo do Sapucai in Minas Gerais, said frost affected about 60% of his plantings. "In some areas of the farm, it burnt all the crop," Di Giacomo said by text message.

Frost may burn leaves and branches on trees, reducing the outlook for 2022 and dashing hopes for a bumper crop that would replenish stockpiles. That's especially significant because coffee trees are on a two-year cycle and are set to produce more next season.

Many fields were already pruned last year to produce in 2022, and now will have their potential output reduced, said Regis Ricco, a director at RR Consultoria Rural. After the drought and frosts, next year may be the worst high-yield cycle in decades, he said.

The last two frosts are jeopardizing between 1 million to 2 million bags from Brazil's 2022-23 crop, according to a survey conducted of exporters and agronomists by Minas Gerais-based Cazarini Trading.

For now, readings will warm up over the next few days, and the new cold front forecast next week isn't expected to bring severe freezing temperatures, said Drew Lerner, the president of World Weather Inc.

A drought earlier this year slashed production of arabicas, the type of bean favored by Starbucks. In northern areas of Sao Paulo and Triangulo Mineiro, in Minas, soil moisture is around 20%, way below the 60% needed for crop development, according to Rural Clima. There are also signs of lower productivity this season as well for Brazil's robusta beans, used by companies such as Nestle in its Nescafe instant brands that are in higher demand during the pandemic.

The odds for La Nina's return are at 45% between August and October, 55% from September to November and 62% from October to December, according to the U.S. Climate Prediction Center. There's little cushion — the U.S. Department of Agriculture sees inventories in Brazil ending the season at the lowest level in data going back to 1960 and U.S. green-coffee stockpiles are down 18% from a year ago.

With all the upheaval, a La Nina's return "would likely inject new impetus to prices," said Hernando de la Roche, senior vice president for StoneX Financial Inc.

The weather woes add to shipping delays from Colombia due to political unrest and soaring freight rates that have made it more expensive for traders to move beans around the world.

For Carlos Mera, Rabobank International's head of agricultural research, all weather issues have been priced in, at least for this year's output. However, the prompt return of rain for next year's harvest will be "fundamental" for supply prospects, he said.

Even with a big chunk of the harvest done, buyers are having a hard time finding beans in the spot market, said Ricco, who sees arabica output this year at about half of last year's total.

Daniel Daianas Ribeiro, a 42-year old farmer who cultivates about 2,000 hectares of coffee in Sao Paulo and Parana with his family group, has reduced his crop estimate by 25% to 30% since the harvest started in May.

The current harvest is already disappointing. The drought has damaged beans, making them smaller or hollow. As a result, on average farmers need 600 liters, or 158.5 gallons, of beans to fill one 60-kilogram bag, instead of the usual 450 to 500 liters, said Judy Ganes, a consultant who has covered the market for more than three decades and just returned from touring the crops in Brazil.

"Some people don't want to believe how bad the situation is, and they keep inflating last year's crop, saying there's plenty of stockpiles," she said.

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