There are some theories by meteorologists and commodity traders that El Nino can reduce Brazil and other producing countries’ coffee production resulting in a surge in prices. However, if this season was any indication, this has been far from the truth. Timely rains, a fall in the Brazilian Real and increased Brazilian coffee plantations have resulted in a collapse in prices, even as El Nino appears to be making a rebound.
The two biggest Brazilian coffee droughts of the past several decades were from October-December , 1996 and most recently January-February, 2014, in which coffee prices soared above $2/lb. Presently, coffee prices have fallen close to 90 cents/lb.
Some of the low coffee production years on this chart (above) are due to the typical off-cycle production years that occur every other year. This chart does not include Brazil coffee production the last two years, which has increased substantially resulting in the present surplus of global coffee supplies. The stars represent coffee production of El Nino years. The big fall in the 1995/96 crop was due to the severe freezes in June/July 1994 and not El Nino.
A look at rainfall trends the last few months would appear to illustrate that some weather problems might have occurred in Brazil this winter (their summer). This chart represents the 90 day % of normal totals for South America.
The brown regions in northeast Brazil represent below normal rainfall the last 90 days. So why has coffee production not fallen? Increased plantings, plus rainfall coming at critical times has been enough to prevent any decline in coffee production this year.
Closer scrutiny of actual moisture stress conditions (below) better explains why some bouts of dry weather in Brazil’s coffee area has not be a big deal. The charts below show the generally favorable growing conditions in Brazil recently (left) vs. the last coffee drought from January-March, 2014 (red). Early 2014 was an El Nino neutral year (no La Nina, nor El Nino). Hence, there can be no general conclusion that El Nino in itself causes a reduction in Brazil coffee production, nor subsequent higher prices.
The blue (left) crop conditions in Brazil’s northern coffee areas illustrate the generally favorable growing conditions vs early 2014 (right) when drought sent coffee prices soaring.
My proprietary program suggested last November that even if El Nino was to form, the predicted December-February rainfall trends would not be dry enough to warrant any serious concerns to Brazil’s coffee crop. A rally sometime between May-July would be possible if there was a legitimate freeze scare and/or severe wet weather delaying the coffee harvest. A sudden surge in the Brazil Real could also set a floor on prices if this was to occur.