Coffee prices surge to 6-year high as extreme cold threatens Brazil’s crops

coffee beans

Extreme frost in Brazil’s coffee-growing region is set to harm next year’s crop, sending prices of coffee to a six-year high.

Futures for arabica beans jumped to $2.08 a pound Tuesday, the highest level in New York since 2014, according to the Wall Street Journal.

Exacerbating the price surge is the fact that the frost is the second major weather shock to hit farms in Brazil, the world’s largest coffee producer. This spring, the region’s rainy season hardly saw any rain during one of its worst droughts in almost a century. The drought hurt the 2021 crop and dropped the coffee supply output in Brazil as plants withered.

Now, traders are spooked that the frost will harm the 2022 coffee harvest, and have pushed coffee futures up 30% in July.

José Marcos Magalhães, president of the Minasul coffee cooperative and also a grower, told the Journal that he expects to lose two-thirds of the 2022 harvest on his farm.

“I normally produce 12,000 bags, and now I think I’ll lose about 8,000,” José Marcos Magalhães said.

The frost is the latest weather shock to spoke commodity traders into bidding up prices. Last week, lumber futures spiked as concerns grew that wildfires in Canada and the Western US will harm supply chain routes.

Read more: Top 16 meme stocks this week on Reddit: Tesla tops the charts after record earnings while Chinese stocks get smacked amid brutal regulatory crackdown

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Coffee is the latest commodity to hit multi-year highs as Brazil drought sends prices soaring

farmer, coffee farmer, coffee grower
  • Coffee prices hit a 4.5 year high on Friday extending their rise to nearly 70% in the past year.
  • Dr. Michaela Helbing-Kuhl, an agriculture analyst at Commerzbank, says Brazil’s persistently dry weather is to blame.
  • The drought is expected to continue through August which is “not a good sign for the 2022/23 crop,” according to Dr. Helbing-Kuhl.
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Prices of arabica coffee moved above $1.60 per pound last Friday for the first time since the fall of 2016.

Coffee prices have risen nearly 70% in the past year and currently trade around $1.66 per pound.

According to Dr. Michaela Helbing-Kuhl, an agricultural analyst at Commerzbank, global coffee production has been hurt by persistently dry weather in Brazil.

Brazil’s Paraná Basin, which is home to Minas Gerais, the country’s biggest coffee-producing state, has been hit with a drought that forecasters expect to continue through August, according to a recent commodities report from Commerzbank.

2021 was anticipated to be a strong year for Brazilian coffee producers, but many have experienced weak yields as a result of the drought.

Dr. Helbing-Kuhl said the dry weather is “not a good sign for the 2022/23 crop” either, which begins flowering in September. Protests in Columbia have also hampered the transport of Brazil’s already weak harvest.

Coffee is the latest commodity to hit multi-year highs as the global economy reopens.

From lumber to copper, commodity prices have been on the rise this past year amid record demand and supply chain disruptions brought about by the current bust to boom cycle.

Lumber futures rose as high as $1,670.50 per thousand board feet in early May, although they’ve now fallen back to $1,309. Even with the price drop, however, lumber futures are still up more than 260% in the past year.

Similarly, copper futures are up 88% since this time last year amid surging demand. Bank of America commodity strategist Michael Widmer said copper is “the new oil” in a recent note to clients and claimed it could hit $20,000 per ton due to surging demand.

Oil prices also neared 2-year highs on Monday as investors are expecting OPEC+ to confirm it will continue restricting supply at a key meeting.

Despite rising commodities prices in 2021, there are some signs of a let-up for businesses and consumers. New data from Bloomberg shows hedge funds have cut their bullish bets on commodities in recent weeks.

According to data from the US Commodity Futures Trading Commission and ICE, hedge-fund holdings in 20 of the 23 commodities tracked in the Bloomberg Commodity Index fell by the most since November this week.

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