Arabic Coffee Beans
A worse than expected crop in the coming months will tell on coffee futures, and from there to paying higher prices for a shot of espresso is a short distance. Image Credit: pxhere

Rio de Janerio: Coffee traders are just starting to come to grips with the extent of Brazil's weather woes as prospects for next year's harvest shrivel in the hot and dry conditions.

The smooth-tasting arabica beans that Brazil ships to buyers including Starbucks Corp. saw little reprieve in November, with rainfall missing estimates and prices paid to local farmers approaching record levels, according to the nation's top growing cooperative Cooxupe.

"Rains have been awful, well below the average," Cooxupe Commercial Director Lucio Dias said, adding the impact may extend into the 2022 season. "The situation is very concerning."

Read More

Can escalate

While Brazilian output was already expected to fall after this year's record and as arabica trees enter the lower-yielding half of a biennial cycle, the dryness may exacerbate declines ahead of a possible recovery in consumption, sending the market into deficit. A supply squeeze in the world's top producer may start to bite late next year.

"We see upside for coffee prices," said Carlos Alberto Fernandes Santana, a director at Empresa Interagricola SA, a unit of trader Ecom Agroindustrial Corp. "The Brazilian crop decline hasn't been fully priced in yet."

Cooxupe's meteorological stations show drier-than-normal conditions since May. Areas in Alfenas, a municipality in the nation's coffee belt, had rain above 2 millimeters (0.08 inch) in only 12 per cent of the 210 days through November 29.

In November, the region got 95 per cent of forecast precipitation, although most came right at the end of the month, with temperatures averaging 1 degree Celsius above normal and and maximums topping 36 degrees. That's after a dry October when rain was 60 per cent of normal. 

"Except for rare episodes of good rain, we've had only tiny precipitations of 2 to 4 millimeters and blazing sun," said Mauricio Araujo Ribeiro, who farms 128 hectares of arabica in southern Minas Gerais. "The forecaster predicts rains, the sky gets cloudy, but the rain doesn't come."

Losses on his farms are expected at 30-35 per cent, although if the weather doesn't improve, it could be 50 per cent, he said.


Even in irrigated areas, losses are coming in bigger than first thought, said Regis Ricco, director at RR Consultoria Rural in Alfenas, Minas Gerais. "It's chaos - a year to forget," he said.

The bleaker outlook for Brazil comes after recent hurricanes in Central America that threaten the region's production, while downpours delay robusta-coffee harvest in Vietnam. Supply concerns propelled New York futures to their biggest monthly gain since July.

"I see futures rising in the first-half of next year as the outlook for low production coincides with covid-vaccination optimism boosting coffee demand prospects," said Nelson Salvaterra, a broker at Rio de Janeiro-based Coffee New Selection.

He said prices could get back to between $1.40 and $1.50 a pound from about $1.23 now.