The Soft Spot

Will we see heightened coffee prices in the coming months? Climate.gov refers to a forecast on the heavily predicted El Niño phenomenon coming this summer/fall, giving it a 40% chance of a strong El Niño. This phenomenon will have global impacts, but in the case of coffee, Brazil is the most interesting country to focus on. Brazil is the number one country in terms of coffee production, producing about a third of all coffee produced globally.  El Niño comes with known effects on the weather, not only concerning temperature, but also precipitation. The southeastern part of South America are usually subjected to heavy rainfalls. What this means for coffee bean farmers in Brazil is that the drying process after harvesting might be delayed, as 90% of the beans are sun-dried in Brazil. However, there are other processing methods that includes hot-air blowers to dry the beans. This will obviously come with a cost as opposed to leaving them in the sun. As Brazil is the largest producer, e...

After the bank collapse of SVB, we have seen stronger and increasing concerns of recession and financial crisis. Typical signs of this in the futures market has been the falling oil price and rising gold price. What effects does this bank collapse and its consequences have on the price of sugar? Sugar prices have been under pressure lately, retreating from a six-year high reached in late February. The main reasons for this correction are a weaker Brazilian real, lower crude oil prices, and improved supply prospects from major producers.  The Brazilian real has been depreciating against the US dollar since March 10th, reaching a the lowest point on March 17th since January. This makes Brazilian sugar exports more competitive and encourages local producers to sell more sugar in the international market. Brazil is the world’s largest sugar producer and exporter, accounting for about 21% of global production and 45% of global exports.  Crude oil prices have also fallen since March...

During the last weeks, Chinas leader Xi Jinping has decided to lift strict covid restrictions. Unlike the previous European cases where restrictions was lifted gradually, they have been removed in a rather swift manner. Following this reopening of the Chinese society, it is speculated that certain commodities associated with socializing, such as sugar and coffee, will experience an increase in demand. In the past 14 years, China’s overall coffee consumption has increased more than 1000%. It is important to note that the people of China have been able to drink coffee at home, however the reopening of Chinese society allows visits to coffee shops which might drive further growth of coffee consumption. "World Coffee Portal" reports that the Chinese coffee shop "Cotti Coffee" has opened 1300 stores in the past five months, indicating that the coffee market is still growing. With its high population this can result in a spike of prices if the supply struggles to keep up....

Brazil is the world's largest producer and exporter of sugar, and the country's sugar industry is a critical driver of its economy. However, weather and natural disasters can significantly impact Brazil's sugar production and, in turn, affect global sugar export and stock prices.   This table shows forecast data for market year 22/23, for the 9 largest producers of sugar, Based on USDA data gathered from ( https://apps.fas.usda.gov/psdonline/app/index.html#/app/statsByCommodity )  Brazil accounts for approximately 20 percent of the global sugar production, and the country's sugar industry is heavily reliant on weather conditions, particularly rainfall. The vast majority of Brazil's sugar is produced in the state of Sao Paulo, which has a tropical climate and relies on a regular rainy season to sustain sugarcane growth. The sugarcane harvest in Brazil typically runs from April to November, and weather conditions during this period May significantly impact productio...