A cup of Espresso coffee in Cascais, Portugal, October 11, 2021.
Nikolas Kokovlis | Nurphoto | Getty’s paintings
Extreme weather conditions brought on by the looming El Niño are fueling fears that robusta beans in major coffee producers comparable to Vietnam and Indonesia may very well be affected, sending prices soaring.
“The now widely anticipated transition to El Niño conditions within the third quarter of 2023 has fueled fears of reduced production in Vietnam and Indonesia, major producers of robusta coffee,” Fitch Solutions’ research unit, BMI, said in a May 24 report.
Robusta beans are known for his or her bitterness and higher acidity, and contain more caffeine than their premium and costlier Arabica counterparts.
According to the report, the drought has also negatively affected robusta cultivation in Brazil.
This implies the associated fee of fast coffee and espresso, which are sometimes made out of robusta beans, could come under pressure amid supply concerns and stronger than usual demand for robusta as consumers turn to cheaper arabica substitutes.
El Niño is a weather phenomenon that typically ends in warmer and drier than normal conditions within the central and eastern tropical Pacific Ocean. Climate scientists are predicting this yr’s El Niño could occur decrease within the second half of 2023.
Southeast Asia recently experienced record-breaking heat in mid-May.
Asia has generally liked Robusta greater than Arabica, so the demand for Robusta is growing at a much faster pace
Shawn Hackett
CEO of Hackett Financial Advisors
“In Southeast Asia, El Niño conditions are related to below-average rainfall and warmer temperatures that lower coffee production,” the BMI report said.
The largest producers of robusta are Vietnam, Indonesia and Brazil United Nations Food and Agriculture Organization.
“We note heavy rains in Indonesia up to Q123, which had a negative impact on the standard of coffee beans, with USDA forecasting a decline in robusta coffee production by about one-fifth, the analysts wrote.
Carlos Mera, head of agricultural commodities markets at Rabobank, predicts a ten% drop in production to 11.2 million bags of Robusta within the upcoming harvest.
A person holding Robusta coffee beans at a coffee tasting fair in the town of Buon Ma Thuot, Daklak Province, Vietnam. Bitter and earthy. only suitable for fast infusions.
Nhac Nguyen | AFP | Getty’s paintings
According to research unit statistics, in 2016, El Nino-related water shortages in Vietnam and Indonesia led to a worldwide decline in production by nearly 10%.
Typically in an El Nino yr, it’s “not unusual” for Vietnam and Indonesia to “see a 20 percent drop in production” of robusta beans, Shawn Hackett, president of brokerage firm Hackett Financial Advisors, told CNBC.
“That will mean a fairly serious contraction in Robusta,” he said.
Growing demand for robusta
Robusta beans account for 40% of world coffee production, and Arabica beans account for the remaining 60% of world coffee production. Arabica beans are often considered to be of higher quality and fetch higher prices than robusta coffee.
Nevertheless, global economic pressures are tilting demand towards robusta, a weaker type of coffee.
Robusta prices are being supported as coffee producers and consumers are replacing robusta beans with costlier arabica beans to keep costs down in times of inflation, according to a BMI report.
Robusta coffee prices recently surged to a 15-year high of $2,783 a tonne in late May. They last traded at $2,608 per tonne for July futures, according to data from the Intercontinental Exchange.
Moreover, the premium arabica beans have over robusta beans has fallen to its lowest level since 2019 due to the growing demand for relatively cheaper coffee beans.
“Usually, Asia favored robusta greater than arabica, so demand for robusta is growing much faster than arabica,” said Hackett.
He cited the lower cost of robusta beans in Asia and the population palette of robusta bean-based beverages.
Kopi, also referred to as Nanyang coffee, is a dark coffee drink popular in Southeast Asia, traditionally brewed with robusta beans.
A farmer harvests coffee cherries at a coffee plantation in Central Java, Indonesia, May 25, 2023.
Dimas Ardian | Bloomberg | Getty’s paintings
But Asia shouldn’t be the one region that has taken a liking to robusta.
“Although the decline in imports of washed arabica is partly due to lower availability… the switch to robusta shows that cheaper coffees are clearly preferred within the European market,” said Natalia Gandolphi, an analyst at HedgePoint Global Markets’ Intelligence.
Gandolphi said he was expecting deficit of 4.16 million Robusta bags within the period from October 2023 to September 2024.