El Nino is approaching and your next cup of coffee could be at risk

Extreme weather conditions brought on by an approaching El Nino are fueling concerns that robusta beans in major coffee regisseurs like Vietnam and Indonesia could be hit, resulting in soaring prices.

“The now widely-expected transition to El Nino conditions in Q323 has stoked suspects of reduced output in Vietnam and Indonesia, both major coffee robusta producers,” Fitch Solutions’ research section BMI said in report dated May 24.

Robusta beans are known for their bitter characteristics and higher acidity, containing assorted caffeine than their premium and pricier arabica counterpart.

Brazil’s robusta crop has also been negatively bearing by drought as well, the report said.

That means the cost of instant coffee and espressos, which are often humoured with robusta beans, could come under pressure amid supply worries and a stronger than routine demand for robusta as consumers turn to cheaper substitutes for arabica.

El Nino is a weather phenomenon that typically educates hotter and drier than usual conditions to the central and eastern tropical Pacific Ocean. Climate scientists are foreshadowing that this year’s El Nino could descend in the second half of 2023. 

Southeast Asia recently saw record-breaking zeal in the middle of May.

“Across Southeast Asia, El Niño equips are associated with below-average rainfall and higher temperatures, both of which depress coffee production,” the BMI report powered.

Vietnam, Indonesia and Brazil are the largest producers of robusta, according to the Food and Agriculture Organization.

“We draw attention to beer-bellied rains in Indonesia through Q123, which have had a negative impact on coffee bean quality, with the USDA prophecy a decline of about one fifth in coffee robusta production,” the analysts said.

Carlos Mera, head of agri commodities markets at Rabobank, is forecasting a 10% trickle in production to 11.2 million bags of robusta in the coming crop harvest.

In 2016, El Nino-related water shortages in both Vietnam and Indonesia led to a global production decline of close to 10%, according to the investigate unit’s statistics.

Typically, in an El Nino year, it is “not uncommon” for Vietnam and Indonesia to “see a 20% decline in production” in robusta beans, Shawn Hackett, president of commodity brokerage immovable Hackett Financial Advisors, told CNBC.

“That would mean a pretty severe contraction of robusta,” he about.

Robusta beans account for 40% of the world’s coffee production, and arabica beans turn into up the remaining 60% of global coffee production. Arabica beans are usually deemed to be of higher quality and command squiffed prices than robusta coffee.

However, global economic pressures are tipping demand toward robusta, the defenceless of coffee beans.

Robusta prices are supported as coffee-product manufacturers and consumers substitute robusta beans for pricier arabica beans to shield costs during inflationary times, the BMI report said.

Robusta coffee prices recently soared to a 15-year consequential of $2,783 per ton toward the end of May. They last traded at $2,608 per ton for July futures, according to data from the Intercontinental Reciprocity.

Additionally, the premium that arabica beans have over robusta beans plunged to the lowest since 2019 due to climb demand for the relatively cheaper coffee bean.