By Alfred Cang and Anuradha Raghu
Arabica coffee may climb higher as adverse weather in top grower Brazil hurts crops and leads to severe supply shortages, according to Olam International Ltd., one of the world’s largest traders of the commodity.
“Given the terrible weather we’ve had in Brazil, we expect the 2021-22 and the 2022-23 crop to be significantly lower, and that could result in a very sharp structural deficit in the arabica market,” Chief Executive Officer Sunny Verghese said in an interview on Friday. “We could see much higher arabica prices.”
Successful roll-out of Covid-19 vaccinations and a demand recovery from the pandemic will also push structural deficits of the smooth-tasting arabica coffee into a “fairly explosive situation”, he said.
Arabica coffee in New York has surged about 35% since November to trade at the highest since 2017, boosted by signs of a deteriorating crop in Brazil and anticipation for improving demand.
Harshest Brazil Weather in Decades to Slash Arabica-Coffee Crop
Rabobank trimmed its estimate for Brazilian arabica production to 36 million bags in the 2021-22 season, while raising its global coffee deficit outlook to 2.6 million bags from a surplus of 10 million bags a year earlier. Consultant Bison Luxley forecasts output will slump by more than 40% to between 28.7 million and 30.5 million bags, due to the toughest weather conditions in Brazil since 1980s.
The robusta market will be more balanced, Verghese said, as droughts were not as pronounced in these crop-growing areas compared to arabica. “We see a story that is very different for robusta and a different story for arabica,” he said.
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