Coffee prices soar to 7-year high on Brazil frost fears

The price of coffee has surged to a seven-year high after freezing weather conditions in Brazil fueled fears of a global shortage. The country has been experiencing severe frosts in its coffee belt over the past week which stoked fears of lower coffee production and the subsequent increase in coffee prices.

Coffee bean prices were up more than 30 per cent this week, and 60 per cent since the beginning of 2021.

The New York futures price for Brazil's higher quality coffee bean - arabica - jumped above $2 per pound on the back of a sharp fall in temperatures in Brazil's largest coffee-producing regions - Parana, Sao Paulo and Minas Gerais. The last time, coffee prices were this high was in October 2018.

The surge in prices is likely to affect coffee enthusiasts all over the world as roasters and supermarkets such as Germany's Tchibo and Japan's UCC have already begun to raise rates.

Traders have explained that the frost this year has been more severe than originally anticipated. Many areas in Brazil are seeing temperatures drop to below zero degrees celsius. In the worst affected regions, the temperatures have gone even further down to minus five degrees celsius.

"The damage from Brazil's frost is much worse than we could have imagined and is resulting in a worsening outlook for the 2022-23 crop potential, which, coming after the current small drought-hit crop, is very worrying," Kona Haque at ED&F Man, an agricultural commodities merchant told the Financial Times.

Analysts have already started to lower estimates for next year's crop production by 5-10 per cent, mentioning that the damage to the produce could be worse and will hinge upon farmers' pruning of trees.

"If the damage is extensive, farmers would be forced to prune the trees hard, leading to a sharp fall in production," said Carlos Mera at Rabobank. Pruning of trees will have to be undertaken in key coffee-growing areas of South Minas and Mogiana in Brazil, meaning no harvest next year.

"Even if the trees are not pruned, the frosts will affect the flowering process for next year's crop, creating further uncertainty in the market. Young trees, which need to be replaced would lead to a decline in productivity over the next three to four years," Mera added

Weather forecasts for Brazil have predicted that another frost will hit the nation next week. Coffee traders in the country are bracing for further price volatility. They explained that even a small variation in temperature could cause a big difference in the level of damage done to trees.

Coffee buyers fear that farmers and exporters will "default" on their contracts and not honour their agreements while seeking higher prices, the report added.

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