"Another Explosive Week" - Coffee Futures Hit 7-Year High Ahead Of Next Cold Snap 

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by Tyler Durden
Tuesday, Jul 27, 2021 - 05:45 AM

Arabica coffee futures surged more than 9% to $2.094 per pound, the highest since October 2014, on Monday after forecasts call for more cold temperatures in Brazil, the world's top grower.

Weather models show that another cold snap is imminent for Brazil and likely to produce crop-killing frost across southern Minas Gerais through central Sao Paulo, east-central, and south Parana, from Wednesday to Friday, Maxar meteorologist Donald Keeney told Bloomberg.

"It looks like we're set for another explosive week ahead, with cold weather coming back into coffee-growing regions from midweek onwards," Alex Boughton, a coffee trader at Sucden, wrote in a note to clients. 

In one week, arabica futures prices are up 34%.

We noted the first round of frost began early last week. New forecasts via Reuters suggest last week's frost damaged up to 200,000 hectares (495,000 acres) of arabica coffee fields or 11% of Brazil's total arabica coffee area. 

Damaged Coffee Plants In Minas Gerais

Coffee trees are sensitive to cold weather—about 70% of Brazil's arabica coffee is grown in the central Minas Gerais region. 

Brazil accounts for approximately 40% of the global coffee trade. The prospect of a decline in production for 2022 suggests coffee prices could go higher. 

Judy Ganes, a coffee consultant, told Bloomberg that prices could eventually touch $3 per pound. 

"Where is the coffee going to come from" if the output from Brazil lapses, Ganes said. She noted Brazil accounts for 40% of world output. 

Besides the freak cold snaps, coffee trees in Brazil were already weakened by drought. 

At least 64% of American adults consume coffee every day. The adverse weather conditions in South America will result in coffee inflation that coffee chains will either have to eat and undergo margin compression or pass along to consumers. 

Because Starbucks uses 100% Arabica beans to make their coffee, this could mean prices at one of the US' most popular coffee chains could skyrocket.