A drought – the worst in living memory – has struck Brazil‘s coffee belt, driving coffee price up by 50% between January and mid-March. But now, the prospect of heavy rains contributes to the decline in coffee prices.
Putting an end of the beginning of the year price rush, coffee prices have now been declining for two weeks. The International Coffee Organization (ICO) composite indicator price has moved down from $1.77 on March 13 to $1.53 on March 21 and was at $1.57 yesterday. This decrease can be explained by the prospect of heavy rains in Brazil‘s main coffee growing regions.
Brazil, the world’s top producer, was hit in January by the worst drought in thirty years. “It is extremely rare for Brazil to experience widespread drought on an extended period,” said Christopher Narayanan from Societe Generale.
Given the situation, he said that the Brazilian arabica production is expected to fall by 10% in 2014-2015 to 35.2 million bags. Coffee leaf rust in Central America is also expected to bring the production of eight countries down by 24% between the 2011-2012 and 2013-2014 campaigns.
Despite these events, the coffee market is expected to remain in surplus. The French bank estimates the global surplus to amount to 4.4 million bags in 2013-2014 (down by 1.2 million bags compared to the previous estimate) and 1.5 million bags in 2014-2015 .