Coffee prices jump to 6-year high as Brazilian frost threatens crop

The worst frost to strike Brazil’s coffee-growing region in more than 25 years is set to cut a chunk out of next year’s crop, sending prices of the bean to six-year highs on global markets.

The cold snap is the second weather shock in recent months to strike farmers in Brazil, the world’s biggest coffee producer, threatening to drive up costs at cafes and breakfast tables around the world. Before the frost came a drought that parched the 2021 crop.

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Traders are spooked by the prospect of another lackluster harvest in a year’s time, and have pushed futures for arabica beans up to $2.08 a pound, their highest level in New York since late 2014. Coffee futures have climbed 30% in July and almost doubled over the past year, snapping a yearslong stretch of depressed prices that prompted many farmers to abandon their fields.

The frost-induced rally is one of a series of steep moves in commodity markets caused by extreme or unusual weather. Lumber prices jumped last week when forest fires raging in the West threatened a swath of U.S. wood supply. Floods in northwest Europe snarled the flow of commodities and goods such as chemicals along the River Rhine, an industrial thoroughfare. Plunging mercury in Texas led to a spike in natural-gas and power prices in February.

Investors, meanwhile, are trying to gauge the ability of companies to pass on higher prices for materials like copper, PVC and coffee to consumers. Major coffee companies may offer insights into how their business has been affected when Starbucks Corp. reports earnings after markets close Tuesday, followed by Switzerland’s Nestlé SA on Thursday.

Widespread frosts struck last week and already appear to have ravaged next year’s Brazilian coffee crop. Farmers and traders had been banking on the 2022 harvest to replenish depleted stockpiles after the drought led to a significantly smaller haul this year.

José Marcos Magalhães, president of the Minasul coffee cooperative and also a grower, said he expected to lose two-thirds of the 2022 harvest on his farm. "I normally produce 12,000 bags, and now I think I’ll lose about 8,000," he said.

Minas Gerais is Brazil’s most important coffee-producing state, and the Sul de Minas region produces more coffee than any other part of the state. Temperatures in Sul de Minas fell as low as 23 degrees Fahrenheit in some towns, and the region as a whole experienced the coldest weather since 1994, according to Anete Fernandes, a meteorologist at Brazil’s National Institute of Meteorology.

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The weather won’t harm the 2021 harvest, which is under way, because the small fruits that bear the beans are protected by the coffee trees’ leaves. But Mr. Magalhães said farmers will have to prune their plants or uproot them altogether, shedding about a quarter of next year’s crop in Minas Gerais.

It will take several months before the extent of the damage is known. Kona Haque, head of research at commodities merchant ED&F Man, said between four million and five million bags of coffee could be lost from the 2022 crop. That is just under a 10th of Brazil’s production levels from last year.

"This could even be worse than 1994," Ms. Haque said.

Prices leapt 10% on Monday when another cold-weather front loomed. Forecasters expect temperatures to fall close to or below freezing again later this week.

"I’ve never seen anything quite so dramatic as this," Max Copestake, executive director at Marex Spectron’s coffee brokerage, said of the price gains.

The way the weather has jolted coffee prices demonstrates the risks of the world’s growing reliance on Brazil as a source of beans, according to Mr. Copestake. Low-cost Brazilian farms glutted the global market in recent years, pushing less efficient farmers in countries such as Honduras to switch crops or leave their plantations, he said. That leaves buyers in the U.S. and elsewhere vulnerable to events that knock output in Brazil and Vietnam, the biggest source of bitter-tasting robusta beans.

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Other factors have also led to a revival in coffee prices of late. A shortage of containers has created difficulties in shipping coffee from Brazil and Vietnam. Antigovernment protests have obstructed coffee exports from Colombia. Widespread heat waves, fires and floods are causing jitters in broader agricultural markets.

"Everyone in agricultural commodities is a little bit worried about climate change," said Carlos Mera, senior analyst at Rabobank, a major lender to the food and agriculture industries.