by Natalie West
A rare series of cold air blasts recently rocked coffee farmers in Brazil, the largest supplier of arabica coffee in the world. This unexpected disruption in supply comes on the heels of a devastating drought across Brazil’s coffee growing regions. The result: the sharpest price swings in coffee markets in 25 years.
John Puckett is the owner of Coffee Bean Corral, an international wholesaler of green specialty coffee beans located in Jackson, MS. “We are concerned but we are not panicking,” he said. “Through the last few years of ups and downs, we have tried our best to hold CBC prices steady, but we’ve never seen an up like this.” Days after the frost, those sentiments continue to echo across the market as stakeholders wait for more detailed information to emerge.
All coffee beans can be scored on a 100-point scale based on a process called cupping. “The Specialty Coffee Association sets the standard for specialty arabica coffee at 80 or more points and must be cupped by a certified Q grader,” explained Catherine Mansell, Senior Buyer at Coffee Bean Corral. The damage to crops in Brazil will have a direct impact on specialty coffee.
Arabica coffee farmers in Brazil plant on a biennial cycle that alternates between a high-yielding crop one year and a low-yielding one the next. The 2022 crop affected by recent frosts was a high-yielding one. Minas Gerais, one of Brazil’s top-growing coffee regions, was directly affected by the plunging temperatures with losses estimated as high as seven million bags.
“It’s tricky. We have to see when the smoke clears what the damage actually was,” explained Andrew Vournas, President and CEO of Vournas Coffee Trading, an independent coffee bean importer based in California. “Basically, this affects all coffees, but Brazil's will be tight at some point supply wise. There is always a panic in the beginning. Then, things become more clear.”
“When the cost of specialty coffee goes up, wholesaler costs increase, too,” Catherine Mansell said. “Fortunately, we had already confirmed nearly half of our contracts before the frost, and that will help us keep our costs down.”
A basic understanding of how coffee is priced lends more perspective to how the frost impacts the price of specialty coffee. Coffee crops are sold as a commodity that trades on the commodity exchange alongside sugar, soybeans, etc. Commodities are negotiated via future contracts, or futures.
“In the specialty coffee market, we buy at C Market Plus, which is the New York commodity price for the shipment period plus the differential,” Puckett explained. “For example, a Colombian Supremo might be priced at C Market Plus $1.23 - $1.23 is the differential - which is $3.23 when C Market is valued at $2.00. Sumatran Mandheling may be C Market Plus $2.75, or $4.75.”
Because of its significant market share, coffee trading prices fluctuate based on the supply coming from Brazil. Prices had already increased due to the drought in Brazil earlier this year. To demonstrate the volatility of specialty coffee commodities, Puckett explained, “before the drought, several of Coffee Beans Corral’s coffees were trading at 95 cents plus the differential. After the drought, prices increased to $1.65 to $1.75 plus the differential. Immediately after the frost in Brazil, the C Market price increased 60 cents in a matter of hours,” he emphasized. “That is huge.”
Prices in Brazil send ripples throughout the entire coffee market, and as a result, Mansell has already seen an increase in the price of several Indonesian coffees. Many of the premium coffees sold by Coffee Bean Corral will also be impacted by the frost since arabica beans, the primary coffee crop of Brazil, are used specifically to make specialty coffees.
Although consumers can expect to feel the effects of this price increase, it will not be immediate. Wholesalers use futures to hedge against short term price increases, and many of those future contracts were negotiated prior to the frost. Stakeholders like Puckett and Mansell are also finding ways to cut operating costs to delay price increases.
“We don’t love this,” Puckett said. “We are currently re-evaluating all of Coffee Bean Corral’s contracts and expenses so that we can delay a price increase at least through the month of August. However, we may have an increase in September or October. A lot of beans move through our 13,200-square-foot warehouse to customers all over the world and they are our top priority. Right now, our focus is on keeping those prices down as long as possible.”