Coffee prices surged higher in May 2021 showing signs of progressive recovery with revival in demand and renewed concern over Brazil 2021/22 crop
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Source: ICO
The following is an excerpt from the ICO market report of May 2021:
In May 2021, the ICO composite indicator rose by 10.4% to 134.78 US cents/lb, the highest monthly average since the level of 137.68 US Cents/lb registered in February 2017. A firm upward trend of coffee prices over the first eight months of coffee year 2020/21 seems to confirm a net recovery from the low price levels that began in coffee year 2017/18. The price performance has been driven by an expected reduction in production in key exporting countries like Brazil for the 2021/22 season.
Moreover, the brighter prospects for demand as the covid-19 pandemic-related lockdown measures are being removed in major consuming markets with the covid-19 vaccine programmes is generating greater confidence of consumers in an economic recovery and return to normal. Prices of all four groups of coffee have recorded a substantial increase, particularly the groups of Arabica coffee. In terms of market fundamentals, shipments by exporting countries to all destinations totalled 11.40 million 60-kg bags in April 2021, compared with 11.29 million bags in April 2020.
As a result, total exports over the first 7 months of coffee year 2020/21 amounted to 77.52 million bags compared to 74.49 million bags over the same period in coffee year 2019/20. Cumulative exports from May 2020 to April 2021 are estimated at 130.40 million bags, a small decrease of 0.48% compared with the 130.97 million bags recorded from May 2019 to April 2020. World consumption for coffee year 2020/21 is projected at 167.58 million bags, an increase of 1.9% on its level of 164.43 million bags in coffee year 2019/20. Total production for coffee year 2020/21 is estimated at 169.60 million bags, representing a 0.4% increase on 168.94 million bags in coffee year 2019/20. Although world consumption is increasing, it remains 1.2% below world production. However, with prospects of lower production in Brazil for coffee year 2021/22 and the reductions in other countries, world consumption is likely to exceed world production in coffee year 2021/22.
Source: ICO Coffee Market Report – May 2021
Drought in Brazil: the consequences for the world of coffee
Brazil is experiencing a shortage of water and this situation might severely affect its coffee production. Brazil is in fact the world’s biggest exporter of coffee and the drought the country is currently experiencing has farmers worried that there will not be enough water to get through the dry season (Batista, 2021).
Braganca Paulista, SP / Brazil – February 4, 2012: Empty water system Cantareira reservoir during a severe drought in the state of Sao Paulo.
The rainy season has just ended, yet there is little water, which is why farmers are worried they will run out of reserves within the next few months (Batista, 2021). The rainy season in Brazil usually lasts from December to April, when a significant percentage of the annual rainfall is recorded (Weather Atlas, n.d.).
Coffee Plantation in the mountains of Minas Gerais, Matas de Minas, Brazil II
The following is a description of the annual rainfall in Brazil (Weather Atlas, n.d.):
Brazil receives an annual rainfall of between 990.6mm (39″) to 1498.6mm (59″), with a significant percentage of it from December to April. The northeast is mostly arid, while the west and center receive 1524mm (60″) to 2032mm (80″) of rain, with a dry season in the middle of the year. The east and south do not have a dry season. The mouth of the Amazon receives more than 2006.6mm (79″) of precipitation annually, while western Amazon records more than 2997.2mm (118″).
With its tropical savanna climate, Central Brazil has a seasonal rainfall of between 1397mm (55″) to 1778mm (70″). Coastal cities enjoy a warm climate with constant trade winds. Humidity is high near the coast and in the interior of the Amazon Basin. Subtropical temperatures keep the conditions mild south of the Tropic of Capricorn. Brazil receives ample sunshine, between 2400 to 3000 hours annually, thanks to its proximity to the equator.
Brazil January-April 2021 rainfall compared with 2006-2020 average
Source: (Batista, 2021)
In the worst-case scenario, Brazil’s coffee output might continue its decline for a second year in a row. The production of Arabica coffee, the high-end type used by chains such as Starbucks, is significantly decreasing (Batista, 2021).
According to the latest estimate, the next coffee crop from Brazil might be reduced by nearly 20%, and the US Department of Agriculture’s Global Agricultural Information Network (GAIN) puts the size of the forthcoming crop at 56.3 million 60-kg bags (mil. bags), a reduction of 19% compared to last year’s record output of 69.9 mil. bags (Foxwell, 2021).
Bibliography
Batista, F. (2021, May 18). As Brazil runs out of water, the world could lose out on coffee. Al Jazeera. Retrieved from https://www.aljazeera.com/economy/2021/5/18/bbas-brazil-runs-out-of-water-world-could- lose-out-on-coffee
Foxwell, D. (2021). Next Brazilian Crop Could Be Nearly 20% Lower. STiR. Retrieved from https://stir-tea- coffee.com/tea-coffee-news/next-brazilian-crop-could-be-nearly-20- lower/?utm_source=BenchmarkEmail&utm_campaign=June_2021_News_Update_from_STiR_coffee_ and_tea_magazine_-_01_June&utm_medium=email
ICO. (2021). Coffee Market Report May 2021. Retrieved from https://www.ico.org/documents/cy2020-21/cmr-0521-e.pdf
Weather Atlas. (n.d.). Monthly weather forecast and climate Brazil. Retrieved June 8, 2021, from Weather Atlas website: https://www.weather-atlas.com/en/brazil-climate
Picture credits:
- Opening picture: Shutterstock ID: 192763049c, Retrieved 08 June, 2021, from: https://www.shutterstock.com/it/image-photo/santos-sao-paulo-brazil-september-16-192763049
- Braganca Paulinca: Shutterstock ID: 1343210687, Retrieved 10 June, 2021, from: https://www.shutterstock.com/it/image-photo/braganca-paulista-sp-brazil-february-4-1343210687
- Coffee plantation: Shutterstock ID: 1809013567, Retrieved 10 June, 2021, from: https://www.shutterstock.com/it/image-photo/coffee-plantation-mountains-minas-gerais-matas-1809013567
- Final picture: Shutterstock ID: 771979552, Retrieved 08 June, 2021, from: https://www.shutterstock.com/it/image-photo/brazil-map-on-top-coffee-beans-771979552
