Bloomberg reported the prolonged drought in Brazil has shrunk the coffee output this year. Besides, it is expected to affect next year's harvest as well. On the whole, the drought aftermath could jeopardize coffee production in Brazil for three years in a row. Importantly, the drought has been the worst since 1965.
Production in Brazil could sink as much as 18% to 40.1 million bags when the harvest ends on September, the National Coffee Council estimates. To make things worse, the council said farmers may collect less than 40 million bags in 2015, creating the longest slump in five decades. For the reference, one bag contains 60 kilos or 132 pounds of coffee. Brazil is the world's top coffee grower. A global coffee production deficit may last into 2016 because of the shortfall in Brazil, which accounted for 36% of world supply last year.
Arabica, the most popular sort, is grown in Brazil. Its share in the global coffee output represents about 56%. Arabica coffee futures for delivery in September on the ICE Futures U.S. exchange has surged 70% since early 2014. Interestingly, Arabica futures have gained more than any other of 20 commodities traded on the New York futures exchange this year. According to the Bloomberg survey, futures may rally 15% further by the end of December, to $2.25 a pound.
Meanwhile, the U.S. Agricultural Department predicts coffee supply to exceed demand by over 1 million bags in the near future. Analysts explain such an upbeat forecast by the record abundant coffee harvest in Columbia.
