Seven Brazilian states suffered heavy rain! Causing market concerns about coffee production

Recently, according to media reports, the Brazilian National Meteorological Institute (Inmet) issued a storm and heavy rain warning to seven states, including Minas Gerais, Sao Paulo and Parana. The warning is classified as dangerous and is expected to receive rainfall of 50 to 100 mm per day, accompanied by strong winds of 60 to 100 km per hour, resulting in power outages, plantation damage, tree collapse and flood risks.

It is reported that parts of Brazil have been hit by torrential rains and strong winds, which is caused by the convergence of muggy weather and sea breezes. Brazil's states of Sao Paulo, Goas, Mato Grosso, Parana, Para, Minas Gerais and Santa Catarina have suffered torrential rains.

The worst of these is in the northern state of Sao Paulo, where the National Centre for Natural disaster Monitoring and early warning has issued a yellow alert because of the risk of landslides and floods caused by heavy rainfall. The warning center pointed out that at present, rainfall has accumulated 90 millimeters in several areas in northern Sao Paulo state, with the highest area reaching 100 millimeters, and the rainy season is expected to last until March 2025, with high temperatures. Although no serious economic losses have been reported, the market is worried that heavy rains and strong winds in recent days will once again affect coffee production in the new Brazilian coffee season.

Between April and September this year, Brazil experienced severe droughts and extreme forest fires, with almost no rainfall in some coffee producing areas in the past 160 days, coupled with the drying up of reservoirs and falling water levels in rivers. coffee trees were damaged at the most important flowering stage, so Brazilian and foreign agencies cut Brazilian coffee production and sent coffee prices soaring.

However, in October, Brazil began to resume rainfall, which can ease the pressure caused by the drought, but it has been difficult for coffee trees to return to maximum production. Moreover, between October and November, the weather was also very unstable, with extreme storms from time to time, further exacerbating market concerns about coffee production in Brazil in the new season.

Therefore, earlier, due to the effects of algorithmic trading and the continued weakness and collapse of the Brazilian currency, coffee futures prices fell, but recently, Arabica and Robusta futures prices rose again. The price of type C coffee futures in the United States soared to 332.5 cents per pound, and Robusta futures also rose to 5121 US dollars / ton. The price rise is mainly due to a series of recent remarks by US President-elect Trump to increase tariffs, causing concern in the US market and stepping up procurement efforts.

In addition to climate issues, Brazil's coffee industry is also affected by rising prices and exchange rates. It is reported that the Brazilian currency, the real, is down 1.00%, and the dollar against the real has risen to 6.089, a trend mainly driven by the uncertainty of Brazil's domestic fiscal policy and the strengthening of the dollar in the international market.

The lower exchange rate has led to higher prices of imported goods, especially imported agricultural materials such as chemical fertilizers and pesticides, which have increased planting costs, which has led to higher operating pressure on coffee growers. In addition, the volatility of the real also puts exporters at a disadvantage when negotiating in the international market, squeezing profit margins and possibly leading to a decline in Brazil's share of the international coffee market.

Moreover, due to unstable coffee production, exchange rate problems, high futures prices and other reasons, Brazil's relatively well-known coffee traders Atlantica and Cafebras traders defaulted on the supply of 30, 000 tons of coffee and US $118 million in credit risk, requiring debt restructuring, aggravating market concerns about coffee supply disruptions by other Brazilian traders, affecting the trade of Brazil's coffee industry, so coffee prices will remain high in the short term.

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