Coffee prices soar on dry weather in Brazil1 min read . Updated: 25 Feb 2014, 07:53 PM IST
Higher prices will benefit exporters of coffee beans; domestic green coffee price realizations, too, should improve
Coffee growers had a tough time in 2013 as coffee prices, especially of the arabica variety, plummeted. The only consolation was that the price of the robusta variety was relatively steady, as blenders were using more of the cheaper product to keep their products affordable. That explained why prices of arabica fell despite a decline in output.
Now, 2014 has begun on a brighter note because of the weather-related troubles of Brazil, a major grower. Dry weather is expected to hurt coffee crop, with Brazil estimated to produce 53 million bags of coffee (1 bag = 60kg) in the current year against its potential of 58 million bags, according to a Bloomberg report.
That has caused a sharp jump in coffee prices. Arabica is trading 54% higher than its level at the start of 2014, while robusta has risen by a lower level of 18%. These trends could, of course, change depending on revisions to estimates based on changing weather conditions. For the moment, prices have been doing rather well and coffee consumers will feel the pinch.
In the domestic market, higher prices will benefit exporters of coffee beans, resulting in better revenues and profits for the plantation business. Domestic green coffee price realizations, too, should improve.
On the other hand, sellers of instant coffee will find that their input costs have risen, forcing them to contemplate price hikes. That could hurt consumer demand as consumer budgets are already under pressure due to inflation and low growth.