Coffee prices rise as unusual cold weather threatens Brazilian coffee production

Coffee prices rise as unusual cold weather threatens Brazilian coffee production
Coffee prices rise as unusual cold weather threatens Brazilian coffee production

Arabica coffee prices rose another 10% on Monday after a nearly 20% jump last week, reaching their highest level in nearly seven years as unusual cold weather threatens the coffee harvest at the world's largest producer, Brazil.

Severe frosts last week damaged much of the fields in the main Brazilian coffee belt, and a new polar air mass is forecast to pass over the same areas later this week, making it the third strong cold front to hit crops this year.

Coffee trees are extremely sensitive to frost, which can cause serious damage and even completely kill the trees. If the farm has to replant trees, production will take about three years.

Brazilian state food supply agency Conab preliminary estimates that last week's frost affected 150,000 to 200,000 hectares - about 11% of the country's total arabica crop.

“This is the first time since 1994 that the country has experienced such a weather event,” coffee trader I&M Smith said in a market update, citing the July 20 severe frost.

ICE Arabica coffee futures prices rose sharply on Monday, with the September contract peaking at $ 2,1520 a pound, the highest in the first month since October 2014.

"The magnitude of the damage is still unclear, however, it is estimated that there are now 5, 5-9 million bags (60 kg), up from 2-3 million last week," said Charles Sergeant, a broker for soft and agricultural merchandise at Britannia Global Markets.

The sergeant was referring to the Brazilian harvest of 2022. This year, the smaller crop was mainly harvested. Good production in Brazil next year is considered important in balancing the global supply.

Arabica coffee futures are up about 35% since the end of June, raising the likelihood that major brands will have to hike prices in the coming weeks.

“Over the past 12 months, we have seen dramatic increases in ingredient costs, freight and other costs, which will require us to take action,” said JDE Peet's, one of the world's largest coffee companies, in a statement.

"Historically, significant fluctuations in the price of green coffee have been reflected in the market and we expect this precedent to continue."

Starbucks and Nestle, which are also some of the world's largest coffee processors and retailers, declined requests for comment on the potential impact on the industry and the outlook for declining coffee availability next season.

Small players will certainly suffer, and consumers will have to pay more.

“We only have stocks until September. We have already raised prices three times this year in line with market movements, but the situation remains challenging,” said Luciana Carneiro Mendes, partner at Cafe Carneiro, a small roasting company in Brazil.

Coffee prices in Brazil have risen from R $ 400 ($ 77.30) for a 60kg bag in December to about R $ 800 this month, she said, but there are speculations of a further rise to around R $ 1,000.

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