Arabica coffee production reduction cause a surge in prices

Arabica coffee is by far the most popular variety drank globally, due to its smoother taste and higher sugar content that gives us a unique flavor. Compared to the second most-produced variety, Robusta, the Arabica coffee is at least 50% higher in price, mainly due to its lower yield and higher fragility to insects. The usage is also different from each other. Arabica variety is used for the production of gourmet coffees whereas the Robusta, which has a higher caffeine concentration, is more used in blends and for the production of instant coffees. The main world producers of Arabica coffee in 2021 are Brazil with 47% of the world share followed by Colombia, Ethiopia, Honduras, and Peru.

The world production of coffee is expected to decrease by 6.2% in 2021, reaching 164.8 million bags in total (of 60 kg each). Arabica coffee production is expected to fall by 14%, decreasing its share in world coffee to 53% in this market year. However, the world coffee production wasn’t impacted hard as the Robusta variety is expected to show an increase in production, reaching 77.11 million bags.

The decrease in the world Arabica coffee production is due to the reduction in input from Brazil, Colombia, and Central America. Brazil is the top producer responsible for the decrease in Arabica production. The Brazilian Arabica producers faced a severe drought at the end of 2020 and the beginning of 2021 and also have many off-year areas. The Arabica production in Brazil is forecast to decrease by 29.6%. Overall the Central American producing countries had about 25-30% of their crops affected by rust that spread after the hurricanes Eta and Iota have passed, contributing to the reduction. On top of this, Honduras, the fourth largest Arabica coffee producer will also have a decrease of 11.3% in production. On top of this, Colombia has also faced protests against the government due to tax increases, health care reform, and corruption since the end of April. The protests blocked products to be exported from Colombia, including coffee, pushing prices up. The protests were finished on June 15th after the leaders decided to tone down the movement to avoid life losses and further spread of COVID-19.

As a result, reduced production and anti-government protests have pushed the prices up in 2021. The Arabica coffee was negotiated in ICE Futures for USD 157.25 on June 24th, 47% higher than the negotiated price in June last year. Prices tend to increase even further at the end of the year and before the beginning of the next harvest in the major producing countries. Future prices in the ICE for December 2021 are being quoted at USD 175.65 per bag on June 28th, which is 36.2% higher than last December. The reduction in production and expected increased consumption this year will also affect the ending stocks to drop to a record minimum in five years to only 1.5 million bags.

Arabica Coffee Futures from the ICE (USD/60 kg bag)

Source: The ICE

Source: USDA

Sources:

• Cepea. "Despite the beginning of the harvesting Arabica coffee prices rise in Brazil"
• ICO. "Coffee Market Report"
• Index Mundi. "Commodities"
• Money Times. Translated from Portuguese. "Arabica coffee has a surge in prices due to shortage fear from Brazil and due to Colombian blockages"
• Safras. "USDA lowers world coffee production to 164.8 million bags in 2021/22"
• Trading Economics. "Commodities"
• USDA. Coffee.
• YCharts. "World Coffee Arabica price"