Bad Weather in Brazil Jolts Coffee Prices
Enjoying a cup of coffee from Starbucks (SBUX) right now? Well, savor every sip while you can -- because in a very short time, that coffee could cost you a lot more.
In Brazil, a wave of bad weather is doing a number on Starbucks' favorite arabica coffee bean.
According to Bloomberg, a heat wave and what has been described as the driest rainy season in decades have damaged Brazil's huge coffee crop, with the result that the price of arabica beans has surged 40 percent so far in 2014. Commodity coffee traders predict that as much as 30 percent of the country's coffee crop could go up in smoke, scorched by the sun.
An Awful, Awful, AWFUL Lot of Coffee
A reasonable consumer might wonder: So what? It's a big planet, and there are a lot of countries that also grow and sell arabica coffee. Even if Brazil is having a tough time with the weather, won't other coffee producers simply pick up the slack and keep coffee prices on an even keel?
Well, in theory, yes. That could happen. But the truth is that pretty much every other country on would have to enjoy a surge in coffee production to offset the disaster that is happening in Brazil.
According to Index Mundi, which tracks coffee production, Brazil produces more arabica coffee than the next smaller 10 coffee-producing nations combined. Here's how the numbers break down:
As you can see, the 39.2 million 60-kilogram (about 132 pounds) bags of arabica that Brazil was (as recently as November) expected to produce this year is nearly four times the volume expected from next-biggest grower Colombia -- and six times that of No. 3 producer Ethiopia.
Or if you think of it another way, a mere 10 percent reduction in Brazil's output of arabica would be equivalent to wiping out 100 percent of the entire arabica crops of: Bolivia, Burundi, Cameroon, Congo, Cuba, Ecuador, Haiti, Jamaica, Madagascar, Malawi, Panama, Paraguay, Rwanda, Sri Lanka, Tanzania, Uganda, the Dominican Republic, the Philippines, the United States, Yemen, Zambia and Zimbabwe combined.
Reading the Coffee Grounds
In short, things are getting bad fast in Brazil, and nothing that happens elsewhere is likely to change that. Exactly how bad the Brazilian coffee crop will be abused remains to be seen, though.
Already, unroasted coffee bean prices have touched a one-year high of $1.5665 a pound. But according to Jayme Leme Neto, an export manager at Terra Forte Exportacao e Importacao de Cafe, Brazil's second-biggest coffee exporter, it could take another two to three weeks before growers know the full extent of the damage.
One thing's for certain: The price of your next cup of Starbucks is going up. The only question is by how much.
Motley Fool contributing writer Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Starbucks.
