Friday, February 21, 2014

Where your Cup o' Joe comes from and why it is likely to increase in price this year. What happens in Brazil is not staying in Brazil...

The Washington Post has an article today about the increase in the price of coffee in the commodities futures market.  You can see in this first graph the price going from about $1.20 in January 2014 to $1.72 for contracts to deliver in March 2014 (This is for the most plentiful Arabica bean).

Why the sudden spike in price?
Source: Washington Post

This graphic from Businessweek, shows where the two main coffee beans (Arabica and Robusta) are produced and the countries that are the main suppliers.  Brazil is dominates the cultivation and export of the Arabica bean.  However, the growing season has not been productive:
"...Usually during this time of year, the delicate Arabica coffee plants in the mountains of Brazil, where most of the world's coffee comes from, are maturing. White, fragrant flowers have appeared, followed by cherry-like fruit, each containing two seeds: Arabica coffee beans, the most popular in the world.
But last month, the worst drought in decades hit Brazil's coffee belt region, destroying crop yields and causing the price of coffee to shoot up by more than 50 percent so far this year. The drought is historic, with more than 140 cities in Brazil rationing water. The country's leading newspapers reported that some neighborhoods are only receiving water every three days.
For now, retail prices for coffee are stable. Roasters typically have enough supplies to cover themselves for a few months. But if the price of the Arabica (pronounced uh-RAB-ick-uh) beans continues to rise, consumers could start seeing the cost of their morning coffee creep up later this year, according to Jack Scoville, a futures market analyst specializing in grains and coffee, among other commodities...." (Washington Post)
Source: Businessweeek

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