Unexpected weather conditions prompt a surge in the price of coffee on the New York ICE Futures Market, the FIFA World Cup set to take over Brazil, and the latest update from leaf rust affected Central America.
Brazil has experienced an unusually hot and dry December, January and February, prompting yield concerns for the upcoming 2014/15 crop year from producers and exporters at origin. The unprecedented dry rainy season is being called the worst drought in Brazil’s history and has stimulated a surge in the price of coffee on the ICE Futures Market in New York. The market reached a 16 month high last week. This move exceeded all expectations and has left the market in a volatile position. Rains have started to move into the major coffee growing regions which should ease some of the affected areas; however they will fall far short of making up the typical averages for this time of year.
In other news from the origin, Brazil will soon be coming into harvest period with the typical season beginning in May and running through to July. This year, at the height of the harvest period, Brazil could see some major disruptions as it plays host to the 2014 FIFA world cup. From 12 June – 13 July, the nation will be taken over by mad soccer fans. Some industry professionals at origin are concerned about the possible effects this hype will cause for farmers and exporters. With many transport and delivery schedule changes already underway, there is hope that the World Cup will not cause any shipment delays. The origin will enjoy a national holiday whenever the home side is involved in a match, which could cause staffing issues resulting in lost hours needing to be made up. Traders and exporters are advising their clients against visiting the origin during this period, warning of long lines at the airport and limited transport.
The latest reports from leaf rust affected Central America paint a concerning image for smallholder producers in the region. The reports suggest that smallholder farmers are resorting to ‘atypical negative coping strategies’ to deal with the financial consequences of the outbreak. These strategies, ranging from slight to extreme - such as eating less and working more, to pulling children out of school and selling assets, can be very costly in the long term. Employing these measures help today but will hurt tomorrow. The fact that producers are beginning to implement these strategies demonstrates the severity of the situation our industry is facing. With producers unable to think long term, the future of coffee within the region appears unsteady. The proposed solution to the crisis lies in farm diversification. However these large-scale relief measures can be costly and long term, thus unappealing to producers requiring a short term fix. While the yield reduction from the 2012/13 crop year was not as dramatic as first predicted, we are only now seeing the full extent of the damage as we come into the 2013/14 harvest season.
Ref: CRS Coffeelands Blog, WSJ, Bloomberg, DR Wakefield.