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Coffee Market

September 11th, 2014

This year has been one of the worst harvests on record for coffee growers in South America. The largest contributing factor was widespread drought in Brazil, which, according to National Geographic, is the world’s largest coffee exporter by a significant margin. Brazil outproduces its nearest competitor, Colombia, by almost 12 million bags.

 

The dire state of the Brazilian coffee harvest has led to high levels of anxiety among commodities traders, who saw the price of coffee futures hit highs that haven’t been seen since the global recession hit growers hard in 2009.

 

The predicted yields from this year’s harvest will be a seven-year low for Brazil. Bloomberg.com also reported that “global production will fall 8.1 percent to 142.7 million bags, a three-year low, as consumption climbs two percent to 151.5 million bags.”

 

ScienceWorldReport has recently raised attention to some of the less obvious affects of the shortage. Due to the shortage, farmers in other coffee producing countries are beginning to cut their coffee, adding other ingredients such as corn, rice and other grains that affect the purity of the product. This leads to retailers, such as Starbucks and Keurig Green Mountain Coffee, selling coffee with impurities.

 

Volatility of this kind is indicative of the possibility of a second market contraction on the scale of what happened in 2009, which could spell disaster for Brazilian farmers that depend on stable harvests to pay their bills and remain current on loans they used to finance their crop, including equipment financing and mortgages on their farms.

 

On a more global scale, volatility in the coffee market will spell trouble for commodities brokers and others who trade agricultural commodities: coffee is the second most traded commodity in the world, trailing only crude oil. The question on everyone’s mind is, will price volatility in the futures market drive up retail prices? We had best hope not, or else we might not be able to afford the caffeine fix so many of us enjoy every day.

 

Editor’s Note: Information from ScienceWorldReport, National Geographic, and Bloomberg was used in this article.

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