(Dow Jones) -- 10:41 ET - The drought affecting Brazilian agriculture this year will reduce the size of the 2022 coffee crop by 10% to 15%, according to José Marcos Magalhães, president of the Minasul cooperative. Coffee plants have a two-year growth cycle in which the branches that grow one year bear the bean-containing coffee cherries the following year. The drought has had a negative effect on the growth of branches this year, so that will mean less coffee than would otherwise be normal next year, Magalhães says.
Brazil Coffee Growers Concerned About Supply for Early 2022 -- Market Talk
(Dow Jones) -- 10:59 ET - The unusually dry weather in Brazil last year and this year that has hit coffee production could mean shortages of beans for export next year before the start of the 2022 harvesting season, according to José Marcos Magalhães, president of the Minasul coffee cooperative. Farmers' and cooperatives' stocks of coffee are very low, and so far this year deliveries of coffee by growers to Minasul for sale are about half the normal amount for this time of year, he says. The pace of deliveries is starting to pick up, but given the smaller-than-normal crop this year, Magalhães says he's worried there might not be enough coffee to go around next year before the 2022 harvest begins.
Coffee Prices Soar After Bad Harvests and Insatiable Demand
By Will Horner and Jeffrey T. Lewis
(Dow Jones) -- Global coffee prices are climbing and threatening to drive up costs at the breakfast table as the world's biggest coffee producer, Brazil, faces one of its worst droughts in almost a century.
Prices for arabica coffee beans -- the main variety produced in Brazil -- hit their highest level since 2016 last month. New York-traded arabica futures have risen over 18% in the past three months to $1.51 a pound. London-traded robusta -- a stronger-tasting variety favored in instant coffee -- has risen over 30% in the past three months, to $1,749 a metric ton, a two-year high.
Brazil's farmers are girding for one of their biggest slumps in output in almost 20 years after months of drought left plants to wither. Brazil's arabica crop cycles between one stronger year followed by a weaker year. Following a record harvest in 2020, 2021 was set to be a weaker year, but the drop is more severe than expected.
"I've been growing coffee more than 50 years, and I've never seen as bad a drought as the one last year and this year," said Christina Valle, a third-generation coffee grower in Minas Gerais, Brazil's biggest coffee-growing state. "I normally take three months to harvest my coffee; this year it took me a month," she said.
Brazil's total coffee harvest this year is expected to drop by the biggest year-over-year amount since 2003, according to the U.S. Department of Agriculture. Its arabica crop is forecast to be almost 15 million 132-pound bags smaller than in 2020.
Others are guarding for an even larger slump. Dutch agricultural bank Rabobank expects the harvest to be 17 million bags smaller, while commodities brokerage ED&F Man, whose Volcafe arm is one of the world's largest coffee traders, expects a decline of more than 23 million bags.
"A drop that severe is unprecedented," said Kona Haque, head of research at ED&F Man.
The pandemic shook up how consumers drink coffee. Demand for at-home machines and instant brews rose, compensating somewhat for closed coffee shops. The price rally comes just as Western nations are emerging from lockdowns and cafes are welcoming back customers starved of out-of-home coffee culture.
Global coffee consumption is expected to exceed production this year for the first time since 2017, according to the USDA. 165 million bags of beans are expected to be consumed in 2021. That is 1.8 million bags more than last year. Meanwhile, global coffee production is expected to decline to 164.8 million bags.
There are other factors behind the price rally. Two other major producing nations, Colombia and Vietnam, have had much better harvests than Brazil but are struggling with a different issue: Port delays have left beans sitting idle on the dock.
Exports of Colombian coffee, particularly desired by baristas for its milder flavor, fell as antigovernment protesters blocked highways and ports. A shortage of shipping containers and rocketing freight costs hit Vietnamese farmers, who produce more than a third of the world's supply of robusta.
"The whole supply chain suffered not only a significant increase in costs but also massive delays," said Carlos Mera, head of agri-commodities market research at Rabobank. Unlike other commodities, coffee can only be moved around the globe in containers, he said.
Investors are also playing a role, betting that commodities will benefit from rising prices generally. Some investors bid up the price of coffee by putting money in commodity index funds that track broad baskets of commodities from industrial metals to coffee and cocoa, said Mr. Mera.
"There is a lot of money right now that is very keen on holding commodities as real assets, as hedges against inflation," he said.
Coffee roasters have so far held off from passing higher prices on to consumers, said Ms. Haque. The higher costs of beans coupled with higher freight costs could mean roasters start charging consumers more if they think post-lockdown demand will be strong, she said.
In Brazil, farmers say their stockpiles left over from last year's bumper crop are dwindling and they are concerned they could run out before next year's harvest begins.
"We're a bit worried about having enough to sell next year," said José Marcos Magalhães, president of the Minasul coffee cooperative. The cooperative is urging members to deliver whatever coffee they have to the cooperative so that it can keep meeting its orders, he said.
Coffee lovers could still find a reprieve. Brazil's spring rains, which typically fall in September, will be crucial for determining whether damaged coffee plants can recover and produce enough beans during next year's harvest, said Steve Pollard, a coffee analyst at brokerage Marex.
The alternative could see prices rise even higher, he said. Coffee plants take about 2 1/2 years to develop, and farmers can't respond quickly by simply planting more crops. "If there is a significant deficit then prices could skyrocket," he said.