El Niño Brews Trouble for Coffee

El Niño has impacted coffee production

El Niño used to be the bad boy of weather.  The mere utterance of the term in a group presentation garnered gasps. El Niño meant droughts, blizzards, cold waves and floods — depending on your part of the country. Nowadays, climate change and the polar vortex are the darlings of weather trackers.

El Niño is so passé.

That is, unless you follow the commodities market where El Niño has had a profound impact for more than a year.

Coffee is the most popular commodity to be impacted by El Niño because it is grown in so many places influenced by the tropical Pacific Ocean. The price of coffee percolated up and over $2 a pound late last year and has fallen recently on rumors the drought will have less of an impact on the harvest than originally believed.

However, El Niño will peak in the next four months, enhancing Brazil’s drought, and will not wane until winter. Tropical weather patterns will then return to normal and that is great news for coffee lovers.

El Niño has tortured coffee since late 2013 with prices spiking 118% to $2.28 a pound late last year. If past performance is a good indicator of the future, we will see prices plunge below $1 in 12 to 18 months.

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The Drought Continues

El Niño is a narrow strip of warmer-than-normal sea surface temperatures between Peru and Indonesia. The warmer water causes wind patterns to shift and that, in turn, causes rainfall patterns to align abnormally. The patterns shifted in 2013 as sea temperatures across equatorial Pacific warmed. El Niño caused drought across Brazil, Central America, Indonesia and Southeast Asia. El Niño also caused a weaker-than-normal Indian monsoon.

Drought has been occurring across the coffee growing areas of Indonesia and Vietnam. Dry weather also developed across Central America. El Niño typically causes drought for these regions.

However, Brazil took the brunt of drought, damaging coffee trees so badly that it might take another year or two to heal. The trees — they actually look a lot more like bushes — need plenty of sun and periods of rain. When there’s not enough rain the trees go into self-preservation mode and they either don’t flower well or the beans shrivel.

It is difficult to gauge exactly how the drought will impact this year’s harvest. Industry analysts in Brazil say the Robusta crop will be 20% smaller than it was last year and the Arabica harvest — now underway through May — may be about the same as 2014.  Colombia’s Arabica crop may be better than last year, but Indonesia’s Robusta harvest is expected to be down.

Arabica coffee is aromatic, more favorable and more expensive than Robusta. Arabica coffee is the European and North American brew of choice. Robusta has an earthy, almost bitter taste and is preferred in Asia, where demand for coffee is growing.

Coffee Crunch as El Niño Lingers

Global coffee demand is expected to increase 20% by 2020 and the trade will reach $50 billion, driven mainly by the less expensive Robusta. Of course, increasing demand will yield higher prices.

El Niño is still growing stronger and I expect it to peak this summer.  Yet even now nature is starting to respond to the upcoming change with rain returning to Indonesia in fits and spurts.  Rain ought to start falling on Brazil’s parched soil late this year as El Niño weakens.  As such, this year’s harvest is expected to remain weak, keeping coffee prices elevated.

It typically takes two years for coffee trees to recover from a drought.

All the data I have points to El Niño disappearing this winter and a gradual shift to La Niña conditions during late 2016 and early 2017. La Niña favors ample rain for coffee growing areas, which leads to excellent crops. This will help the coffee trees recover from the ravages of El Niño.

We’ll need the larger crop to meet the growing demand in order to keep prices in check. And, if the forecast holds, the 2018 and 2019 harvests ought to be very good, driving prices back down.

There’s a silver lining in every cloud,
Chris Orr
Chris Orr
Certified Consulting Meteorologist