Coffee ETN Perks Up as Brazil Anticipates Smaller Crops After Bumper Year
This article was originally published on ETFTrends.com.
Coffee prices and related exchange traded note perked up Friday after the Brazilian government projected this year's coffee crop would experience a significant decline from last year's record harvest.
The iPath Series B Bloomberg Coffee Subindex Total Return ETN (JO) increased 2.6% on Friday while ICE coffee futures rose 2.5% to $1.0495 per pound.
Brazil, the world's largest grower of coffee, anticipates its coffee crop to total between 50 million and 55 million 60 kilogram bags, or a 15% decline from the previous year's record harvest of 62 million, the Financial Times reports.
Nevertheless, the median level of the Brazilian agricultural agency Conab’s projection of 52.5m bags is still a record for the off-year and comes in larger than any on-year output, apart from the 2018 bumper crop.
Coffee producers around the world have been warning that current prices are not profitable and could push smaller farmers to cultivate other crops. The bumper crop year that dragged coffee prices to their lowest levels in 12 years have led to coffee growers abandoning farms in Guatemala while Colombian farmers switched over to cocoa production, which is processed into cocaine.
Coffee Prices Hover at $1.06 Per Pound
Due to the declining production, coffee prices are currently hovering at around the $1.06 per pound level, compared to the $1.20 to $1.50 range needed for farmers in many of the Latin American countries to turn a profit.
Silvio Farnese, a supply director at Brazil's Agriculture Ministry, said this season's smaller crop could support prices, especially for arabica futures in New York, since the size of cut in production for that variety is significant, Reuters reports.
Looking further out, coffee prices could rebound as climate changes puts a dent in global production.
“Lower prices like you’re seeing at the moment is more of a risk than climate change for the next three years," Geordie Wilkes, head of research at Sucden Financial Ltd., told Bloomberg. “Producers in central America are making a loss. In the longer term, 10 years onwards, it’s climate change which is more important for the market."
Arabica beans require year-round temperatures of between 15 to 24 degrees Celsius, or 59 to 75 degrees Fahrenheit, according to the Coffee Research Institute. They suffer from frost if it is too cold, and the quality of the coffee declines if it is too warm. However, shifting temperatures are beginning to affect production.
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