Colombia's downpours threaten to deepen world's coffee shortage

New York

TOO much rain in Colombia is deteriorating the production outlook for the world's second-largest supplier of the arabica beans favoured by high-end coffee retailers and brands including Nestle's Nespresso.

"It's been very wet there in main growing areas," Donald Keeney, senior meteorologist for Maxar Technologies said in a phone interview. "They've gotten more rain than they need, and should have more of the same the next 10 days and probably weeks."

The condition spurred by the La Nina weather phenomenon "isn't helping" prospects for 2021-22 yields for the Colombian harvest that usually ramps up next month, said Roberto Velez, head of the country's National Federation of Coffee Growers.

Woes in Colombia threaten to exacerbate a world deficit expected in the coming season, triggered by a plunge in Brazilian output, and complicated by soaring coasts and shipping headwinds. Those factors are boosting the cost outlook for companies including Peet's Coffee & Tea and Starbucks, the world's largest coffee chain, and threatening rising prices for coffee drinkers worldwide.

La Nina creates unusually wet conditions in Colombia and dry conditions in top shipper Brazil. The global supply outlook for arabica beans is already strained by drought and frosts that hurt Brazilian crop yields for 2021, with the country's government seeing a "big impact" for 2022.

Brazilian output plunged by about 18 million bags this year from a year earlier, representing about 40 per cent of the country's arabica production. That decline is more than Colombia's annual production of about 14 million 60-kg bags. The two countries account for about two-thirds of global arabica supplies. Futures in New York soared more than 50 per cent this year.

Tightening supplies have also heightened speculation and concern that Colombian growers will default on contracts entered when prices were much lower, said Hernando de la Roche, a senior vice-president for Stonex Financial in Miami.

Colombia's coffee growers federation earlier this year had called on producers to avoid defaulting on contracts after protests led to port shipping delays and complaints from customers. When asked about potential defaults, Mr Velez said there hasn't been much coffee yet out of the new crop so "we will need to wait and see what happens to deliveries" when harvesting picks up.

The situation in South America further complicates matters for an industry already challenged by surging fertiliser and energy costs, shipping snags and pandemic restrictions in places like Vietnam when the market faces a growing supply deficit.

"We have potentially as explosive a situation as we have ever seen," said Judy Ganes, president of J Ganes Consulting. "In all my decades following this market, I've never seen a situation quite like this." BLOOMBERG