Effects of drought should influence the world price of coffee

The effects of prolonged drought in Brazil - and the consequent increase in the price of coffee - came to European consumers. The Tchibo, leader of the roasted coffee market in countries like Germany, Austria and Poland, put flyers in supermarkets and retail outlets to report that the value of increased product Arabica this month was due to the drop in Brazilian production.
Since the beginning of the year, the production of coffee in Brazil - the largest producer and exporter that supplies around 40% of the international market for Arabica coffee - has been hampered due to the lack of rain and high temperatures. The average increase for the period was 66% in the international market.
Excessive heat in January triggered the worst drought in decades and affected important regions that produce Arabica coffee, as the south of Minas Gerais and the northeast of Sao Paulo. The situation will cause the first production deficit (of about two million bags in the period 2014/2015) on the world coffee market in five years, according to the International Coffee Organization (ICO).
"Besides the drought, the other reason was the increase in world consumption in the second half of 2013. In December, the major buyers began a movement of intense shopping, also because the bag of coffee prices were very low," says Nathan Herszkowicz Executive Director of the Brazilian Coffee Industry Association (ABIC). "Simultaneously, the winter in the Northern Hemisphere enabled consumption and purchases of coffee."
The economist Paulo Henrique Cotta Pacheco, from Ibmec/MG says that the low investment of small and medium farmers in the coffee trees is also one of the reasons for the drop in Brazilian production. He explains that, because of the low price in the last year, producers have invested less in the use of agricultural pesticides and herbicides, fertilizers and irrigation.
The drought has meant that Brazil produces less 15.81% Arabica coffee in 2014 compared to the previous year, "This is historic. When prices are low in a year, there is crop failure in the following year, and the worsening of the quality. And this year was no different, "said Paulo Pacheco. "And yet because of low investment in Minas Gerais was the resurgence of the plague Hypothenemus hampei, which attacks the fruit of coffee plants."
With the drought, Brazil is expected to produce 32.23 million bags of Arabica in 2014, a decrease of 15.81% over the previous year. According to May data from the National Supply Company (Conab), the production of Conilon coffee - their producing regions were not hit by drought - in 2014 is estimated at 12.33 million bags, an increase of 13.49% compared to 2013.
The harvest next year will also be affected due to the drought of 2014. The reason, say experts, is that the lack of rain coupled with high temperatures caused the productive branches of coffee trees to grow less. According to forecasts from the National Coffee Council (CNC) announced in April, the crop of 2015 should be between 38.7 million and 43.6 million bags.
"Our prediction is that prices will stay high. We'll have a better idea of prices and the crop for 2015 from September this year, when flowering coffee happen," says Jânio Zeferino da Silva, director of the Coffee Department of the Ministry of Agriculture. "It will happen partly because Indonesia has announced a crop failure and Vietnam, such as Brazil, also went dry in the producing regions."
Despite the crisis, the expert says that Brazil, accounting for 33.73% of world production, has lost market to other major producers such as Vietnam (18.9%), Indonesia (8%) and Colombia (7.5%). According to him, these countries can not increase production in time to take the Brazilian space.
Moreover, the Central American countries have had a serious rust problem on their plantations. And even if these countries do not have large production, they are recognized for high quality coffee and more expensive.
"If there is increased production in these countries, it will be from 2017. But until then, Brazil also will recover," explains Zeferino da Silva. "We have spoken to Brazilian producers to be aware of what is happening in the market and do not expand a lot their crops, since the coffee plant takes three years to get into production and they can not rely on today's price."
But Brazilian producers and marketers are taking advantage of the high value of the product in the international market to release stocks, Conab estimated at about 15.5 million bags - which Zeferino da Silva claims to be a recommendation of the government. The bags were stored in storage since last year, when coffee prices reached a record low in six and a half years.
"Most of these stocks no longer belongs to the farmers, but traders who are making big money with this turning of price," explains Paulo Pacheco. "And these big companies, which hold market information not only in Brazil but worldwide, take advantage of the information asymmetry to place their bets," added the economist from Ibmec/MG.
Source: Café Point