El Nino weather impact affects coffee supply in Vietnam, Indonesia, Brazil

Robusta beans in major coffee producers such as Vietnam and Indonesia could suffer due to the approaching El Nino’s extreme weather, prompting concerns that prices will rise as a result.

„The now widely expected transition to El Niño conditions in Q323 has fueled fears of reduced production in Vietnam and Indonesia, two major coffee robusta producers,” Fitch Solutions’ research arm BMI said in a report dated May 24.

Robusta beans are known for their bitter characteristics and high acidity, with more caffeine than their premium and more expensive Arabica counterpart.

Brazil’s robusta crop has been adversely affected by the drought, the report said.

That means prices for instant coffee and espressos, often made with Robusta beans, could come under pressure amid supply concerns and stronger-than-usual demand for Robusta as consumers turn to cheaper alternatives to Arabica.

El Niño is a weather phenomenon that typically brings warmer and drier conditions to the central and eastern tropical Pacific Ocean. Climate scientists have predicted that El Nino may occur this year Landing in second half of 2023.

Southeast Asia recently saw record-breaking heat in mid-May.

„Across Southeast Asia, El Niño conditions are associated with below-average rainfall and high temperatures, both of which reduce coffee production,” the BMI report said.

Vietnam, Indonesia and Brazil are the largest producers of Robusta Food and agriculture system.

“Heavy rainfall in Indonesia with Q123 has had a negative impact on coffee bean quality. USDA A fifth decline in coffee robusta production is forecast,” analysts said.

Carlos Mera, head of agricultural commodities markets at Rabobank, predicted robusta production would drop 10% to 11.2 million bags in the upcoming crop harvest.

In 2016, El Niño-related water shortages in both Vietnam and Indonesia caused a 10% decline in global production, according to figures from the Research Unit.

In general, in an El Niño year, it is „unusual” to „see a 20% decline in production” in Vietnam and Indonesia robusta beans, Shawn Hackett, president of commodity brokerage firm Hackett Financial Advisors, told CNBC.

„That would mean a severe contraction of Robusta,” he said.

Robusta beans account for 40% of world coffee production, and Arabica beans account for the remaining 60% of world coffee production. Arabica beans are generally considered higher quality and more expensive than Robusta coffee.

However, global economic pressures are driving demand towards robusta, a laggard of coffee beans.

Robusta prices are being supported as coffee producers and consumers substitute robusta beans for more expensive arabica beans to save costs during inflationary periods, the PMI report said.

Robusta coffee prices recently hit a 15-year high of $2,783 a tonne at the end of May.. They are It last traded at $2,608 per tonne for July futures, according to Intercontinental Exchange data.

In addition, the The premium for Arabica beans over Robusta beans is much lower after 2019 Due to the growing demand for relatively cheap coffee beans.

„Asia, in general, prefers Robusta more than Arabica, and demand for Robusta is growing much faster than demand for Arabica,” Hackett said.

He cited the low cost of robusta beans in Asia and the people’s palate for robusta-bean-based beverages.

Gobi, also known as Nanyang coffee, is a dark coffee drink popular in Southeast Asia, traditionally brewed using Robusta beans.

But Asia isn’t the only region that has taken a liking to Robusta.

„The low availability of washed arabica imports is partly to blame…the shift to robusta shows that the European market is very much in favor of cheaper coffees,” said Natalia Gandolfi, analyst at Hedgepoint Global Markets in Intelligence.

Candolfi said he expected Shortage of 4.16 million bags of Robusta during October 2023 to September 2024.