The current drought in Brazil is one of the biggest in a hundred years. This was the largest drop in coffee production in 20 years.
The most popular Arabica variety is grown in Brazil. The prices of these grains reached five-year highs in June.
Arabica-based futures on the New York Stock Exchange have risen 18 percent to $ 1.51 per pound (about 0.45 kilograms) in the past three months.
The second widespread variety of robusta traded on the London Stock Exchange in three months added more than 30 percent to $ 1,749 per tonne. This is the highest rate in the last two years.
Colombia and Vietnam also have problems
Coffee production in Brazil has its specifics. A year of good harvest is almost always followed by a weak year. Last year’s harvest was a record, so this year a weak harvest was expected. However, the results significantly exceed the most pessimistic estimates.
“I’ve been growing coffee for over 50 years and I’ve never experienced such a terrible drought as I have in the last two years,” grower Christina Valle told The Wall Street Journal, noting that the harvest normally took three months, while a month was enough for it this year.
To make matters worse, other coffee producers also have problems. In Colombia, the transport of coffee supplies from ports is delayed due to anti-government protests, Vietnam is facing higher transport costs due to the pandemic.
In the Czech Republic, mainly packaged grains will become more expensive
Czech consumers are most interested in whether coffee in shops and cafés will become more expensive. This will probably happen, but not right away.
“The rise in the price of coffee beans on world markets will certainly be reflected in the price of final products. However, some delays must be expected. Large roasters, resellers and distributors of coffee beans buy coffee production on the basis of futures contracts, which they usually negotiate three to nine months in advance, ”Pavel Peterka, the chief economist of the Roklen Group, told Novinka.
He reminded that in 2020, the consumption of coffee decreased due to lockdowns.
“In some countries, up to 20 percent. It is therefore possible that the coffee market has a certain reserve in stocks. After the depletion of stocks and the expiration of previously concluded futures contracts, we can expect pressure to increase the price, ”added Peterka.
According to Peterka, this pressure is reflected to varying degrees in individual coffee products.
“Retail chains will have to make coffee bean packaging more expensive due to rising raw material prices. “Quality growth of instant coffee should be affected only marginally by price growth, because the final price of these products includes production costs rather than the price of the raw material,” he specified.
“In cafes and restaurants, the price of coffee should not rise too significantly due to the strong competitive environment and the space to absorb the price shock to margin. In addition, these companies often use coffee and coffee products to attract customers to whom they cross-sell other goods and services on offer, ”concluded Peterka.