July 29, 2021

Why is frost in Brazil causing global coffee prices to increase?

On 1 July, frost was reported in some Brazilian coffee-producing areas – not an uncommon occurrence from June to August in the southern parts of the country.

However, in the early hours of 20 July, a sudden, more severe frost hit the same regions again. Average temperatures in Minas Gerais, a major coffee producing region, fell as low as -1.2°C (29°F) – causing devastating, irreparable damage to coffee plants. 

This intense “freak” frost swept the country, concentrating in regions and states that produce significant volumes of coffee. The most heavily impacted regions were the states of São Paulo and Minas Gerais – the two largest coffee-producing states in Brazil.

According to reports by CONAB, the Brazilian government’s agriculture department, some 70% of all Brazilian coffee has already been harvested for the 2021/22 crop year. However, reports of estimated production losses are rising. Around the world, market analysts and coffee traders are suggesting this could be the worst frost since 1994, and stating that there may be repercussions for the global coffee market for as long as four years.

To learn more, we spoke to a trader, an agronomist, and a Brazilian coffee producer. Read on to find out what they told us.

You may also like our article about the Brazil frosts in 2019 and how they affected global coffee prices.

frost on coffee trees brazil

Frost & Brazilian coffee production

In recent weeks, Brazil saw some of its coldest weather in more than 25 years. On Tuesday, 20 July, temperatures fell below 0°C (32°F) for hours, causing frost damage.

Sam MacCuaig is a trader at Keynote Coffee in Bristol, UK. “Frost has been happening for many years,” he says. “The last significant one was in 1994, after one in the 1970s. It’s not that they are necessarily getting more regular or worse; they are known to occur.

“Some level of frost occurs every year, but it’s normally in low-lying areas in valleys or places where growing coffee is riskier [and less prominent]. This kind of frost seems to happen every 15 to 30 years.”

Frost occurs when the temperature of the air that is “in contact” with the ground drops below the freezing point of water. This causes the moisture in the air to freeze, creating snow and ice. Overnight, ice crystals generally form on exposed surfaces – such as the leaves of coffee trees.

Two types of frost can occur: white frosts and black frosts. White frosts cause visible ice crystals to appear on leaves and plants, but may not cause permanent damage. 

However, black frosts occur when temperatures drop below 0°C with little humidity. Instead of causing moisture or water to freeze, plant leaves turn brown or black because of “frost burn”, causing irreversible damage.

“For young plants that are not yet producing, the frost will kill the entire plant,” Sam says. “Even if they bounce back, they will never produce cherries.”

damaged coffee trees brazil

Impact on coffee production

It’s difficult to assess the damage at the moment. At present, while there is definitely an understanding that there has been a significant frost, there will be no way to know for sure for at least a few weeks. At present, “reasonable” estimates claim that anywhere from 2.5 to 5.5 million bags have been lost. 

However, in an article published yesterday, PDG Brasil reported the true figure could be as high as 10 million. Agronomist and consultant Roberto Santinato said: “It’s necessary to evaluate the loss of productivity about 60 days after the frost occurs. 

“This is when we will be able to define the most appropriate actions.”

Some farmers also reported their losses to PDG Brasil. Eder Mascarelli is a coffee farmer based in Andradas, southern Minas Gerais. He said that of his six hectares of farmland, four were affected by frost. 

“It was very severe,” he told PDG Brasil. “We have never seen that here. Most crops [were damaged] without the presence of ice.”

Eder estimated that his loss for the 2022 harvest will be about 50%. He said the situation fills him with “a sense of despair, helplessness, and anguish, because we do not know how to get around the situation”.

Sam tells me that farmers can do little to recover from frost once it has occurred. “There’s not a lot for producers to do,” he says. “Severely-affected farms are being advised to dig out all their coffee trees. Farmers can also run irrigation systems overnight which can help to stop frost from forming.”

damaged coffee trees brazil

Increasing coffee prices

Brazil is the world’s largest coffee producer. As a consequence, Sam says that Brazilian coffee production significantly affects prices for the global market. 

“The market trades Brazil’s supply and demand more than any other country, because it’s such a significant producer of coffee,” he says.

These harvests and any impact on them have huge implications on the rest of the market. In 1994, a similar frost caused coffee prices to reach a record high of US $4.48/lb.

Earlier this week, something similar happened. After severe frosts through last week in Brazil, the coffee price closed on Monday, 26 July above US $2/lb – the highest figure since October 2014.

“The frost is causing arabica prices to increase, because this is an off-year,” Sam says. “Earlier this year there was a drought in Brazil, meaning there has been a drop in production this year already, [which increases prices too].”

Following the frosts, some reports are claiming prices may even rise to US $3/lb once the full extent of the damage is assessed.

But this isn’t the only reason that prices have increased in the last year and a half. Over the last 18 months, shipping container shortages, the Covid-19 pandemic, and protest blockades in Colombia have also contributed to rising coffee prices.

There has even been speculation that because of a lack of available technical assistance through 2020, crop yields have been predicted to fall globally, which would likely cause price increases too. 

There are already reports that farmers around the world are sacrificing quality and selling their crop “early” to capitalise on the high market price. In Colombia, some producers are selling coffee at 15% moisture; others are simply pulping the coffee and delivering it “wet” for the same price they would have received last year.

Furthermore, Roberto Vélez, President of the Colombian Coffee Federation (FNC), gave a statement yesterday urging producers not to default on existing contracts to instead capitalise on the current high market price. The FNC noted that doing so could result in a “serious marketing problem” which could “even bankrupt co-operatives”.

While the increase will make most specialty coffee lots more expensive, it’s also worth noting that ultra high-end coffees (88 points and upwards) should largely be unaffected. 

roasting coffee beans

How will frost affect the global coffee market?

With more frost expected towards the end of this week, the extent of the damage remains to be seen. In areas such as Apucarana and Pinhalão, in Paraná, the chances of the same kind of frost occurring remains high – 100% likely, according to some sources.

Sam says: “If it’s a really severe frost event, it will have implications for many years. If it’s less severe, it will still affect at least the 2022/23 season.”

Agronomist Roberto Santinato has been following the Brazil coffee market for over 40 years. In yesterday’s article, he told PDG Brasil: “There will be a few difficult years for coffee producers. 

“As the frost was severe, coffee trees will take time to recover. In some cases, it will take three to four years.”

Sam also notes that the rest of the supply chain will soon feel the knock-on effects. He says: “We may see some Brazilian co-operatives go under, and for roasters, prices will go up.

“Roasters and retailers are already suffering because of Covid-19, so price increases due to frost damage may be a chance to increase prices and offset lost revenue.”

There are reports of major coffee brands such as Tchibo and UCC Coffee already increasing prices for their coffee, as futures prices have increased by 30% since the start of the week. As the extent of the frost damage continues to be assessed, smaller-scale roasters and retailers may be forced to also raise their prices.

“You either pay more or drop quality,” Sam explains. “One of those two things will happen everywhere, but how it will play out on the marketplace remains to be seen.”

frost on grass

Last week, Brazil’s Secretary of State for Agriculture, Livestock, and Supply, Ana Valentini, met with producers in Minas Gerais to gauge the level of support needed to recover from the frost damage.

In a statement, she said: “The state will make a very detailed and reliable report of what the producer is facing, what each one has lost and will need.”

Ultimately, however, history has taught us that widespread frosts in Brazil have a significant impact on the global coffee market. For example, in 1975, a notorious black frost in Brazil caused global prices to rise by 100% in less than a year.

With more frost expected this weekend, it’s still too early to discuss what precisely this means for the global coffee market. One thing is for sure, however – the full, detailed extent of this severe and unpredictable frost remains to be seen. 

Enjoyed this? Then read our article on an early history of the C market: Exchanges and derivatives through history

Photo credits: Edson Ricci, Arnaldo da Costa, Denílson Canavan Basso

Some quotes have been translated from Portuguese.

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