How Recent Weather in Brazil Might Affect Coffee Prices and Production

Many of us tend to take our morning coffee ritual for granted. We roll out of bed, and if we’ve planned ahead, our morning coffee is already hot and ready to go, brewed by our automatic coffee makers. Ah, the miracles of modern technology.

The Rain in Brazil Falls Mainly on the Coffee Plants (Or Not)

How often do we think about the weather in Brazil while we’re enjoying our cup of morning coffee? Unless we’re invested in Arabica futures, it probably never crosses our minds. But it should. Brazil produces around 40% of the world’s coffee supply. When the South American nation’s coffee output is reduced, coffee prices tend to go up worldwide. Recently, there have been concerns that Brazil’s dearth of precipitation could curtail coffee production, causing shortages and rising prices at your local coffee shop.

Coffee: A Fragile Commodity

Coffee plants are extremely sensitive to changes in weather. A lack of rainfall could damage the fragile flowers, and if those flowers are not allowed to bloom, the coffee “cherries” don’t develop. When that happens, the plants can’t produce coffee beans – whether they’re grown in Brazil or anywhere else. This isn’t the first time that arid weather conditions have caused commotion in the coffee futures market. Around this time last year, Brazil was in the throes of one of the worst droughts in recent memory, and coffee prices rose accordingly. By March, the tight Arabica market caused coffee prices to top $2.00 per pound. They haven’t gotten that high yet; as of this writing, the end of day settling price is hovering just below $1.53/lb. Sporadic rainfalls in Brazil have allayed fears of a worldwide coffee shortage.

A Worldwide Coffee Shortage Starting in Brazil?

The currency exchange rate has also kept coffee prices somewhat conservative. Coffee beans are traded in U.S. dollars on the international commodities market, and as the dollar gains ground on the Brazilian real, coffee growers and exporters look to move more product abroad, in order to take advantage of advantageous exchange rates. So is it time to worry about getting your morning caffeine fix? Well, not quite. Still, it’s worth keeping an eye on the weather in Brazil during the coffee growing season, and when they start praying for rain, you may want to invest in coffee futures.