Cold weather in the world's largest exporter of coffee ignites prices

The world's largest coffee-exporting country is facing cold weather it hasn't seen in more than 25 years, dimming hopes for the harvest and threatening to raise the prices of the popular beverage.

Temperatures in Brazil's coffee-growing regions have fallen below zero measured on Tuesday across the southern state of Minas Gerais, the coldest since 1994, according to Rural Clima. Frost is expected to continue in the far south of the country, while another hail mass is expected to appear on July 29. New York coffee futures jumped as much as 7.7% to their highest level since 2016.

The frost represents a second blow to farmers after the severe drought that left the fields dry and led to the depletion of water tanks needed for irrigation. In addition, the drought may worsen, with expectations of a possible return to the "Nina" weather patterns that delay rainfall in the region. This series of misfortunes may cause consumers to pay higher prices in cafes and stores.

Francisco Cesar de Giacomo is a farmer in São Goncalo do Sabocay, in Minas Gerais. He said that the frost affected about 60% of his farms. According to a text message to him, Di Giacomo confirmed that "all the crops were burned in some areas of the farm."

Frost could burn leaves and branches on trees, lowering expectations for 2022 and dashing hopes of a bumper crop that will replenish stocks. This is particularly important, given that coffee trees take a two-year cycle and are set to produce more next season.

Several fields were already pruned last year for production in 2022, and now their potential production will be reduced, said Regis Rico, a director at RR Consultoria Rural. After drought and frost, he said, next year could be the worst productive cycle in decades.

Meager stocks

The last two frosts put between one and two million bags of Brazil's crop in the 2022-2023 season, according to a survey by Casarina Trading, based in Minas Gerais, of exporters and agronomists.

A drought earlier this year reduced production of Arabica, Starbucks' favorite. In the northern regions of São Paulo and Trengolo Mineiro, in Minas, soil moisture is about 20%, well below the 60% needed for crop development, according to Rural Clima.

There are also signs of low yields this season for the Brazilian Robusta beans, which companies like Nestle use in their instant Nescafe brands, which are in high demand during the coronavirus pandemic.

The odds of a return of "La Nina" weather are 45% between August and October, 55% from September to November, and 62% from October to December of this year, according to the US Climate Prediction Center. There is little preparation, with the USDA expecting stocks in Brazil to end the season at the lowest data level dating back to 1960 and green coffee stocks in the US down 18% from a year ago.

With all the turmoil, the return of La Nina weather "is likely to give new impetus to prices," Hernando de la Roche, senior vice president of StoneX Financial Inc, said.

Colombia problems

The weather problems come with delays in shipping from Colombia due to political unrest and high freight rates that have made transporting grain more expensive for merchants around the world.

For Carlos Mera, head of agricultural research at Rabobank International, all the weather problems have been reflected in higher prices, at least for this year's production. However, Mira believes that a rapid return of rain for next year's season will be "fundamental" to the supply forecast.

For his part, says Regis Rico, director at RR Consultera Rural, this year's production of Arabica will reach about half of last year's total. Even with much of the harvesting process completed, buyers are struggling to find beans in the spot market.

Anial Dayanas Ribeiro, a 42-year-old farmer who planted about 2,000 hectares of coffee trees in São Paulo and Parana with his family, has cut his yield estimate by 25% to 30% since the harvest began last May.

The current harvest is already disappointing, said Judy Ganes, a consultant who has covered the market for more than three decades and just returned from a crop tour in Brazil. The current harvest is already disappointing, as drought has damaged the grain, making it smaller or hollow. As a result, she added, farmers on average need the equivalent of 600 liters (158.5 gallons) of grain to fill one 60-kilogram bag, rather than the usual 450-500 litres. "Some people just don't want to believe how bad the situation is, and they keep on amplifying from last year's harvest, saying there are too many stocks," she said.