No sign of a reduction in coffee prices in the near future

No sign of a reduction in coffee prices in the near future

Coffee Berries

According to a recent article published by Bloomberg the coffee crop in Brazil, (which is the world’s largest grower of coffee beans), could drop by as much as 18% when the current harvest finishes at the end of December. These figures issued by the National Coffee Council come on the back of a 3.1% drop in output in 2013. With forecasts predicting that less than 40 million bags of coffee will be collected in 2015, this represents the longest slump across the past five decades.

The ongoing drought in Brazil has its toll

The problem is being caused by the current drought, which experts are saying is the worst that Brazil has seen in its recent history. The drought affects the younger coffee bushes worst. Because their root systems are not as well established as older plants, they are simply not able to get as much water as they need. Under normal circumstances, you would expect to get approximately 50 kg of green (unroasted) coffee beans from the coffee cherries grown on younger plants. But because of the paucity of water, young bushes are only yielding 30 kg of coffee beans per 100 kg of coffee cherries picked. Even older bushes are struggling during the ongoing drought, yielding no more than between 35 and 40 kg.

Brazil produces over one-third of the world’s coffee. In terms of Arabica coffee, the coffee that is most popularly used for making espresso and cappuccino, it produces over half of global coffee bean output.

No one is profiting

Although coffee prices have soared, the small coffee growers (who supply much of the worlds demand) are not really gaining anything themselves. Because the yield per coffee cherry is that much lower, they are having to employ more labor in order to maximize the harvest.

Leaf Rust in Central America adds to concerns for coffee production

But the Brazilian drought is not the only thing impacting on the world coffee supply situation. In Central America, a disease known as “Leaf Rust” is damaging the crops there. The combination of both events has seen coffee bean prices soar, with further rises potentially in the pipeline.   In the first quarter of 2014, the price of coffee futures surged by a whopping 61% forcing both Starbucks Corp and JM Smucker to raise their retail prices.

Coffee prices register the highest gains across 22 commodities

The cost for the ever-popular Arabica coffee that is due to be delivered this month (December) rose 6.9% to settle at $2.208 per pound. At one stage during trading, it reached $2.255, the highest figure since January 2012. A report issued by Bloomberg reveals that the trading on aggregate futures was up by 56% over the average recorded in the past 100 days. According to money managers, the betting on higher coffee prices climbed 12%. The state of the world coffee market is reflected by the fact that of the 22 raw materials Bloomberg lists in its commodities index, coffee has registered the highest price gains across the board is 2014.

No help expected from other coffee markets

India is one of the top 10 coffee growers in the world, but because of the high price they charge, export sales have remained somewhat sluggish. Many buyers are thought to be holding back on making major purchases, hoping for better news when the new crop arrives. Unfortunately, the outlook is not optimistic.

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