Coffee Prices: Global Prices to be Affected as Coffee-Exporting Regions Suffer From Drought and Extreme Weather

February 1
9:03 PM 2016

Dry and extreme weather conditions in some regions are affecting coffee crops in Brazil and Colombia, world's biggest coffee growers. In response to that, sales outlook has been diminished, forcing investors to trim their bets that coffee prices will fall this year.

Previously, the prices for coffee beans drop at the lowest point since 2014 due to oversupply. CNN Money reported that the fall is as big as 33 percent, from $1.65 in 2014 to $1.11 in 2015 for a pound of arabica coffee. However, coffee prices on retails didn't decline as well, because of a big rise in workers' wages.

However, the El Nino weather pattern has brought dry conditions to Brazil, the world's number one coffee producer and exporter. Consequently, the coffee crop has suffered and harvests are not expected to bear sufficient supply. The weather forecast also confirmed that extreme weather conditions will continue to bring drought to the country for relatively long, even though El Nino occurred most of the last year. El Nino hit the state of Espirito Santo, Brazil's top robusta-producing state.

But the coffee markets are as alive as ever. In fact, the U.S. Department of Agriculture predicted that the world demand will hit a record-high this season. Bloomberg reported that global production will see a rise of demand to 3.4 million bags in the 2015-2016 season, compared to a November estimation of 2.79 million bags of 60 kilograms. However, Brazil's stockpiles, estimated to fall to between 4 million and 6 million bags, would not be enough to meet both domestic and export demand. The stockpiles number is near a record low.

The news has resulted in traders and investors to cut their bearish wagers for the first time in three weeks. Arabica coffee added 0.3 percent last week on ICE Futures U.S. in New York as prices climbed for six straight sessions through Thursday. 

According to AgriMoney, the stock is low and it should underpin domestic prices in 2016. Brazil has also seen a rise in arabica coffee bean values to more than R$500 ($125) per bag of 60 kilograms, a new high since October 2014.

However, Brazil's exports have remained strong until date, at 2.01 tonnes (33.4 million bags) last year compared to 1.97 million tonnes in 2014. The drought caused by El Nino has been reported to consume about 20 million bags of coffee a year.

Despite the weather forecasts and demand estimation, speculations for the 2016 coffee prices vary widely among spectators. But it's agreed upon that the supply will decrease due to drought in coffee-producing regions during the extreme weather season. 

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