Events in Brazilian coffee shape the rest of the market. So as the country reported a positive outlook for the 2022/2023 harvest, the news sent the price of coffee futures on ICE tumbling.
Futures are not just financial instruments but are contracts used by farmers to lock in the price of their crop in advance. The traders or their customers take the risk of whether the prices will be higher or lower at the point of harvest.
While the recent high price has been good for some farmers, others that were hit more severely, have been left without enough beans to sell at the higher price to compensate for the lost crop. Further, some of those farmers have sold their crop on contract months previously, to traders, at the lower price. They now suffer both from the poor harvest and a lower price which they already agreed with traders.
In some regions of the country, up to 20% of the trees were destroyed. The biggest growing regions, like Minas Gerais and Alta Mogiana, were badly affected, and the farmers there, will need to plant new trees which will not see their first harvest for at least three years.
However, in other areas, where the impact of the frost was not so bad, the recent weather has been good, with September rainfall quenching the effects of the earlier drought, and leading to some optimism about a bumper harvest next year.
The country’s Robusta production is also set to increase, now set for 20.2 million 60kg bags pa. A huge 20% jump in just three years. Farmers are planting more of the sturdier plant, which they see as perhaps being a safer bet than the more fragile Arabica.
Although Robusta prices are not as good as Arabica, the tree is more sturdy and presents less of an investment risk. The local roasting market is switching to more Robusta as the price of Arabica becomes too high for local consumers. The country consumes around 23.6 million 60kg bags of coffee each year. In the UK, a number of roasters are considering to add a Robusta blend to their catalogue, if they don’t have one already.