Why Is Brazil Coffee Production Falling So Sharply?
Brazil's coffee production is expected to drop 15.3% in 2022 compared with 2020, another high-yield year, according to the National Supply Company under the Ministry of Agriculture. Drought, frost and a fertilizer supply crisis are behind the cut, and Arabica futures prices have swung widely as the market absorbs the shortfall.
Minas Gerais, which accounts for about 30% of Brazil's Arabica coffee bean output, received only 9.5 millimeters of rain in one recent week, just 44% of the historical average. Brazil imports roughly 85% of its fertilizer, with Russia and Belarus supplying 28%, so the war in Ukraine has added further uncertainty to the next crop.
Brazil, the world's largest coffee producer, is facing severe challenges. Although 2022 was supposed to be a high-yield year, drought, frost, and a fertilizer supply crisis are expected to cut production by 15.3%. With fertilizer prices soaring and transportation costs high, coffee growers are struggling to stay profitable. Arabica futures prices are fluctuating, adding to market uncertainty. This article provides an in-depth analysis of the reasons behind Brazil's coffee production decline and its impact on international prices, along with a professional perspective from Front Street Coffee.
Brazil occupies the top spot in the global coffee landscape, and its harvest fluctuations directly affect international markets. 2021 happened to be an "off-year" for Brazilian coffee, and it was hit by a once-in-a-century drought and severe frost, causing the previous season's production to drop by more than 22%. Combined with shipping disruptions, Arabica futures prices nearly doubled within a year.
Yesterday, CCTV Finance reported that Brazil, the world's largest coffee producer, is facing pressure to reduce production. 2022 was supposed to be an "on-year" for Brazilian coffee, but data from the National Supply Company under Brazil's Ministry of Agriculture shows that compared with 2020, which was also an on-year, this year's production is expected to decrease by 15.3%.
The impact of climate change on Brazil's coffee production is clear. Last year's drought and frost not only damaged the current crop but also suppressed the potential for increased production over the next two years. On June 6 local time in Brazil, weather company Somar Meteorologia pointed out that Minas Gerais received only 9.5 millimeters of rain last week, just 44% of the historical average, and Arabica coffee production in that state accounts for as much as 30% of Brazil's total output.
When CCTV reporters visited coffee plantations, some managers expressed concerns about fertilizer shortages. They had purchased fertilizer in advance, but still need to buy large quantities in the future. Brazilian agriculture relies heavily on imported fertilizer, with about 85% coming from overseas, and Russia and Belarus together accounting for 28% of total imports. The Russia-Ukraine conflict has hindered fertilizer exports from these two countries, adding uncertainty to Brazil's coffee production.
In the past, plantations would purchase fertilizer in July, but this year, due to external factors, they acted four months early. However, supplies are tight, and the plantation mentioned in the report has fertilizer stock sufficient for only the next six months. One manager said he had no confidence in future supply.
Prices of major fertilizers in Brazil have also risen significantly, jumping from $350 per ton last year to $1,300 per ton this year. According to The New York Times, since the intensification of the Russia-Ukraine conflict last month, some fertilizer prices have increased by as much as 40%. High costs are making it difficult for plantations to be profitable, so Brazilian coffee growers have begun retesting soil nutrients and reducing fertilizer application as appropriate.
In addition to compound fertilizers, the plantation manager interviewed by CCTV reporters also showed other alternatives, such as organic compost made from coffee fruit husks and animal manure, as well as quicklime fertilizer.
In addition, rising fuel prices have pushed up transportation costs, with container freight rates increasing three to five times.
As of today, Arabica coffee bean futures closed at 224.63 cents per pound on June 13, down 1.87% from 228.90 cents on June 10.
Image source: CCTV Finance Weibo, internet
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The above content is compiled by CoffeeHunters, a coffee news website.
