Frost In Brazil
In the past 10 days, reports of a harsh frost in Brazil’s coffee growing regions have been all over the news. Why is this important, and what does it mean for each of us? Well, right now, it could mean a jump in coffee prices all over the world – or not.
It all started on July 20th, when temperatures in the coffee growing regions of southern Brazil dipped below freezing, damaging the area’s coffee trees. Reports from the Brazilian government supply agency say the frost affected about 11% of the country’s total arabica crop area. Word was that Brazil could lose up to 8% of its crop, or about 5 million bags of green coffee.
Since Brazil is the largest producer of coffee in the world, producing 39% of the world’s coffee, this news caused activity in the coffee futures market to skyrocket.
Coffee is the second most traded commodity in the world after oil, and the market has many speculative investors not tied to the coffee industry. So when the word spread that Brazil’s coffee sector was hit with its first major frost since 1994, speculators poured in and bought up coffee futures. On July 27, it was reported that arabica coffee futures had risen about 35% since the end of June. This buying activity drove the market price up, from $1.60 a pound to a high of $2.15 a pound in 6 days.
Fast forward to Monday, August 2st. The latest reports indicate that the damage from the frost in Brazil may not be as bad as was originally reported, but it will take several months to understand the full extent of the loss. As of this writing, the coffee futures market is down to $1.74 a pound. And we’ve all been served a huge reminder of the power of nature in this ever-fluctuating marketplace.
You can learn more about the frost and its effects on the coffee industry at Reuters, Bloomberg and The Food Institute.
– Lowell Grosse: Owner and Head Roaster