El Nino is approaching and your next cup of coffee could be at risk

Extreme
weather
conditions
brought
on
by
an
approaching
El
Nino
are
fueling
concerns
that
robusta
beans
in
major
coffee
producers
like
Vietnam
and
Indonesia
could
be
hit,
resulting
in
soaring
prices.

“The
now
widely-expected
transition
to
El
Nino
conditions
in
Q323
has
stoked
fears
of
reduced
output
in
Vietnam
and
Indonesia,
both
major
coffee
robusta
producers,” Fitch
Solutions’
research
unit
BMI
said
in
report
dated
May
24.

Robusta
beans
are
known
for
their
bitter
characteristics
and
higher
acidity,
containing
more
caffeine
than
their
premium
and
pricier
arabica
counterpart.

Brazil’s
robusta
crop
has
also
been
negatively
impacted
by
drought
as
well,
the
report
said.

That
means
the
cost
of
instant
coffee
and
espressos,
which
are
often
made
with
robusta
beans,
could
come
under
pressure
amid
supply
worries
and
a
stronger
than
usual
demand
for
robusta
as
consumers
turn
to
cheaper
substitutes
for
arabica.

El
Nino
is
a
weather
phenomenon
that
typically
brings
hotter
and
drier
than
usual
conditions
to
the
central
and
eastern
tropical
Pacific
Ocean.
Climate
scientists
are
predicting
that
this
year’s
El
Nino
could

descend
in
the
second
half
of
2023. 

Southeast
Asia
recently

saw
record-breaking
heat
in
the
middle
of
May.

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

Vietnam,
Indonesia
and
Brazil
are
the
largest
producers
of
robusta,
according
to
the

Food
and
Agriculture
Organization.

“We
draw
attention
to
heavy
rains
in
Indonesia
through
Q123,
which
have
had
a
negative
impact
on
coffee
bean
quality,
with
the

USDA
forecasting
a
decline
of
about
one
fifth
in
coffee
robusta
production,”
the
analysts
said.

Carlos
Mera,
head
of
agri
commodities
markets
at
Rabobank,
is
forecasting
a
10%
drop
in
production
to
11.2
million
bags
of
robusta
in
the
coming
crop
harvest.

In
2016,
El
Nino-related
water
shortages
in
both
Vietnam
and
Indonesia
led
to
a
global
production
decline
of
close
to
10%,
according
to
the
research
unit’s
statistics.

Typically,
in
an
El
Nino
year,
it
is
“not
uncommon”
for
Vietnam
and
Indonesia
to
“see
a
20%
decline
in
production”
in
robusta
beans,
Shawn
Hackett,
president
of
commodity
brokerage
firm
Hackett
Financial
Advisors,
told
CNBC.

“That
would
mean
a
pretty
severe
contraction
of
robusta,”
he
said.

Robusta
beans
account
for
40%
of
the
world’s
coffee
production,
and
arabica
beans
make
up
the
remaining
60%
of
global
coffee
production.
Arabica
beans
are
usually
deemed
to
be
of
higher
quality
and
command
higher
prices
than
robusta
coffee.

However,
global
economic
pressures
are
tipping
demand
toward
robusta,
the
underdog
of
coffee
beans.

Robusta
prices
are
supported
as
coffee-product
manufacturers
and
consumers
substitute
robusta
beans
for
pricier
arabica
beans
to
save
costs
during
inflationary
times,
the
BMI
report
said.

Robusta
coffee
prices
recently
soared
to
a
15-year
high
of
$2,783
per
ton
toward
the
end
of
May.
They

last
traded
at
$2,608
per
ton
for
July
futures,
according
to
data
from
the
Intercontinental
Exchange.

Additionally,
the

premium
that
arabica
beans
have
over
robusta
beans
plunged
to
the
lowest
since
2019
due
to
soaring
demand
for
the
relatively
cheaper
coffee
bean.

“Asia,
generally
speaking,
has
taken
a
liking
to
robusta
more
so
than
arabica,
and
as
such
the
demand
for
robusta
is
growing
at
a
much
faster
rate
than
demand
for
arabica,”
said
Hackett.

He
cited
the
lower
price
point
of
robusta
beans
in
Asia
and
the
population’s
palette
for
robusta-bean
based
drinks. 

Kopi,
also
known
as
Nanyang
coffee,
is
a
dark
coffee
beverage
popular
in
Southeast
Asia
that’s
traditionally
brewed
using
robusta
beans.

But
Asia
is
not
the
only
region
that
has
taken
an
increased
liking
to
robusta.

“While
the
reduction
in
washed
arabica
imports
is
partially
due
to
lower
availability
…
the
shift
to
robusta
shows
that
cheaper
coffees
are
being
heavily
preferred
by
the
European
market,”
said
Natalia
Gandolphi,
analyst
at
HedgePoint
Global
Markets’
Intelligence.

Gandolphi
said
she
expects
a
deficit
of
4.16
million
bags
of
robusta
for
the
October
2023
to
September
2024
period.