Frost forecast in Brazil unnerves coffee drinkers
Brazil, the world's biggest coffee grower, is facing the risk of frost after hail this month, raising the prospect of a 40 percent jump in bean costs after Kraft Foods Inc. and J.M. Smucker Co. already increased prices.
The chance of frost in Brazil increased with the weakening of La Nina, a cooling of waters in the Pacific Ocean, Brazil's Somar Meteorologia said this week. Frost in 1994 damaged 35 percent of the crop by 1997, sending prices up 39 percent that year, according to Somar. Should cold weather damage trees this year, coffee may rise to a record $4.20 a pound, the median in a Bloomberg survey of 11 analysts, traders and investors.
Arabica beans have jumped 25 percent this year on signs demand is outpacing supply. The shortage will be 6.2 million bags in the crop year starting in October, according to Rabobank International. Kraft, maker of Maxwell House coffee, raised prices three times last year.
"There is no room for disruption," said Rodrigo Costa, vice-president of institutional sales at Newedge USA LLC in New York, who correctly forecast a year ago that coffee would climb. "If Brazil has a frost, not only will we see uncharted prices but the situation might become unbearable."
Kraft, based in Northfield, Ill., increased U.S. prices on Maxwell House and Yuban ground coffees by about 22 percent on March 16, spokeswoman Bridget MacConnell said. Orrville, Ohio-based Smucker, maker of Folgers coffee, raised them by 10 percent in February, Vincent Byrd, director and president of U.S. retail coffee, said.
Arabica coffee, preferred by coffee shops such as Starbucks Corp., climbed as rains associated with La Nina damaged crops in Colombia, the fourth largest producer last year, according to the U.S. Department of Agriculture. Brazil's crop will be 13 percent smaller than last year, Brazil's Agriculture Ministry estimates.
Cold weather from the South Pole is due in the Center South in the week of May 9 and temperatures are forecast to fall to about 5 degrees Celsius (41 degrees Fahrenheit), Santos said. Coffee trees can be damaged if temperatures fall below 1 degree Celsius, he said.
Frost in Brazilian growing regions can damage trees bearing the following year's crop. "Even without weather disruptions there will be a deficit," Newedge's Costa said.
There was hail this month in some Brazil growing regions, and the damage was estimated at 50,000 to 60,000 bags, according to Somar. Brazil produced 55.5 million bags last year, according to the USDA. This year's crop is estimated at between 41.9 million bags to 44.7 million bags by Brazil's Agriculture Ministry.
Stockpiles in producing countries have been falling since 2003, when inventories were at 52.7 million bags, data from the London-based International Coffee Organization show. The 13 million bags in storage now represent 1 1⁄2 months of global exports, the lowest in at least half a century, according to Jose Sette, the ICO's executive director.