How Weather Is Testing Brazil's Coffee Industry Again

Brazil's National Institute of Meteorology issued storm and heavy rain danger-level warnings for seven states, including Minas Gerais, São Paulo, and Paraná. Forecasts call for 50 to 100 mm of rain per day and winds of 60 to 100 km per hour. Cumulative rainfall in northern São Paulo has reached 90 mm, with localized totals near 100 mm, prompting a yellow alert for landslides and flooding.

No severe economic losses have been reported, but the market is watching the new crop closely. Drought and forest fires from April to September had already damaged coffee trees at the flowering stage, leading several institutions to lower production forecasts and push prices up. Futures prices climbed again, with exchange rate moves adding pressure, and the rainy season is expected to run until March 2025.

Brazil's National Institute of Meteorology recently issued storm and heavy rain danger-level warnings for seven states, including Minas Gerais, São Paulo, and Paraná, forecasting rainfall of 50 to 100 mm per day accompanied by strong winds of 60 to 100 km per hour. Cumulative rainfall in northern São Paulo has already reached 90 mm, with some localized areas receiving up to 100 mm, and the risk of landslides and flooding has prompted the warning center to issue a yellow alert. Although no severe economic losses have been reported so far, the market is widely concerned that this round of severe weather will once again hit Brazil's new coffee crop production. The severe drought and forest fires from April to September had already damaged coffee trees during the flowering stage, leading multiple institutions to lower production forecasts and drive up coffee prices. This article will review key information including Brazil's recent weather conditions, coffee futures trends, exchange rate impacts, and trader credit risks.

Recently, according to media reports, Brazil's National Institute of Meteorology (Inmet) issued storm and heavy rain warnings for a total of seven states, including Minas Gerais, São Paulo, and Paraná. The severity of the warning was classified as danger level, with expected rainfall of 50 to 100 mm per day and strong winds of 60 to 100 km per hour, posing risks of power outages, plantation damage, falling trees, and flooding.

It is reported that parts of Brazil were hit by heavy rain and strong winds, triggered by the convergence of muggy weather and sea breezes. Heavy rain has struck areas including São Paulo, Goiás, Mato Grosso, Paraná, Pará, Minas Gerais, and Santa Catarina.

The most severely affected area is northern São Paulo, where heavy rainfall has created risks of landslides and flooding, prompting Brazil's National Center for Monitoring and Early Warning of Natural Disasters to issue a yellow alert. The warning center noted that cumulative rainfall in several areas of northern São Paulo has reached 90 mm, with the highest areas reaching 100 mm, and that the rainy season is expected to continue until March 2025, along with persistently high temperatures. Although no severe economic losses have been reported so far, the market is concerned that the recent heavy rain and strong winds will once again affect Brazil's new coffee crop production.

From April to September this year, Brazil experienced severe drought and extreme forest fires. Some coffee-producing regions saw almost no rainfall for nearly 160 days, and combined with dried-up reservoirs and falling river levels, coffee trees were damaged during the most critical flowering stage. As a result, both domestic and international institutions lowered Brazil's coffee production forecasts, causing coffee prices to soar.

However, by October, rainfall began to return to Brazil. Although this could ease the pressure brought by the drought, the coffee trees have already struggled to recover to maximum yields. Moreover, from October to November, the weather was highly unstable, with extreme storms occurring intermittently, further intensifying market concerns about Brazil's new coffee crop production.

As a result, earlier on, due to the effects of algorithmic trading and the continued sharp depreciation of the Brazilian currency, coffee futures prices fell back. But recently, both Arabica and Robusta futures prices have risen again, with the U.S. C-type coffee futures price surging to 332.5 cents/lb, and Robusta futures also rising to $5,121/ton. The main reason for this price increase is that recently U.S. President-elect Trump made a series of remarks about raising tariffs, triggering concerns in the U.S. market and prompting increased purchasing efforts.

In addition to climate issues, Brazil's coffee industry is currently also affected by rising prices and exchange rates. According to reports, the Brazilian real fell 1.00%, with the USD/BRL exchange rate rising to 6.089. This trend was mainly driven by a combination of uncertainty over Brazil's domestic fiscal policy and the strengthening of the U.S. dollar in international markets.

The weakening exchange rate has led to higher prices for imported goods, especially imported agricultural inputs such as fertilizers and pesticides, increasing cultivation costs and putting coffee growers under greater operating pressure. In addition, fluctuations in the real have also placed exporters at a disadvantage when negotiating in international markets, squeezing profit margins and potentially leading to a decline in Brazil's share of the international coffee market.

Moreover, due to unstable coffee production, exchange rate issues, and high futures prices, well-known Brazilian coffee traders Atlantica and Cafebras have defaulted on 30,000 tons of coffee supply and $118 million in credit risk, requiring debt restructuring. This has intensified market concerns about disruptions to coffee supply from other Brazilian traders and affected Brazil's coffee industry trade, so coffee prices are expected to remain at relatively high levels in the short term.

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The above content is compiled by CoffeeHunters, a coffee news website.