Drought in Brazil means morning coffee to cost more
Prices in New York at highest in two years as drought in Brazil sparks fears crop could shrink
The morning caffeine hit is about to get more pricey as drought in top producer Brazil has sparked fears of a global shortfall of coffee this year, sending the price of beans soaring.
Coffee prices hit their highest point in two years in New York, with Arabica beans due for delivery in May fetching US 203.75 cents per pound, more than double that of the US 100.95 cents per pound in November.
The worst drought to hit Brazil in decades has sparked fears that the crop in the world's biggest coffee producer could shrink for the second consecutive year for the first time since 1970.
Leandro Gomes Ribeiro Costa, head of coffee at farmer group Coopamig, said some regions of Brazil have had only a tenth of their average rainfall so far this year during a crucial stage in the beans' development.
Coopamig, which is made up of 5,800 farmers from the country's main coffee producing region Minas Gerais, expects to harvest up to 30 per cent less coffee this year than in 2013.
"I've never seen such a drought in my life: in some places we have found coffee wilted on the tree," he said.
The price of robusta, the more bitter variety of bean used in instant coffee, has also surged due to cold and drought in Vietnam. On Friday, London prices hit US$2,176 a tonne, up from US$2,076 at the same time last week.
The International Coffee Organisation (ICO) now forecasts a global production deficit of at least 2 million 60kg bags of coffee in 2014-15.
FO Licht analyst Stefan Uhlenbrock said the market had staged a complete turnaround since November, when "everybody was talking of supply overhang, with Brazil coming off a record off-year crop, Columbia seeing a very strong recovery in its production and Vietnam also heading for a bumper crop".
The beginning of the year is a crucial period for the development of Brazil's coffee beans, and the market is easily spooked by fears of a poor crop.
Agronomist Marcelo Almeida said the lack of water in parts of Brazil had stunted bean development. This year it will likely take 600 to 700 litres of coffee cherries to produce a bag of 60kg, after washing and drying, compared with 500 litres in a normal year.
"It is fairly unprecedented this kind of drought at this particular period of time in terms of cherry growth," said Kona Haque, who leads Macquarie's agricultural commodities research.
FO Licht has already reduced its forecast for Brazil's crop this year by 15 per cent to 48 million bags.
"The real damage will only be seen when the harvest starts in May," Uhlenbrock said.
Griffiths Coffee, Australia's oldest coffee roaster, is already forecasting a rise in consumer prices.
"The recent increase in prices of coffee beans will see an increase of at least 50 cents in a cup of coffee," Chris Togias, director of Griffiths Coffee, said.