Brazil's worst drought in decades has the world's largest coffee producer heading for its longest slump since 1965, Bloomberg reported. Brazil's National Coffee Council estimates that production may fall by 18% to 40.1 million bags when harvests end in September, following last year's 3.1% decline. The NCC said farmers could produce less than 40 million bags in 2015, marking the first three-year slump in five decades, according to the news agency.
Coffee cherries are harvested from April to September, and, as of August, 86% of the crop has been picked, Bloomberg reported. The trees now need rain to grow blossoms for next year's crop, but growing regions are expected to see 35% less than normal rainfall in September. A weak flowering would mean a smaller amount of coffee beans would be produced in the 2015 season.
ICE coffee futures were up 4.7% on Aug. 26, trading around $1.965 a pound. The surge is forcing roasters like J.M. Smucker Co., maker of Folgers, and single-cup giant Keurig Green Mountain, to raise prices. | READ MORE
Rising demand has supported the elevated prices, with the International Coffee Organization expecting a global production deficit of as much as 10 million bags in the year starting Oct. 1.
Despite Brazil's reduced output, however, the global coffee supply has seen four straight years of production surpluses that sent arabica futures in November to a seven-year low of $1.0095.
The U.S. Department of Agriculture is forecasting the trend to continue, according to Bloomberg, with output exceeding demand by 961,000 bags in the 12 months that start Oct. 1, down from 4.56 million a year earlier. Colombia, the second-largest producer of arabica beans, will produce its biggest crop since 2008, the USDA said.
Inventories are shrinking, however, with reserves at the end of 2013 totaling 40.1 million bags, down from 72.9 million a decade earlier.