Coffee

Economics 101: Brazil

By

www.BuyOrganicCoffee.org

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economics-101-brazil/

Brazil is the largest producer of coffee by

far.

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economics-101-brazil/

So, it should not be a surprise that Brazil

drives the supply side of the supply and

demand equation for coffee.

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economics-101-brazil/

Here is a snapshot of the coffee

producing countries from Bloomberg

Business.

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economics-101-brazil/

Total Coffee Production, thousands of 60 kilogram bags, 2010 to

2011 seasonBrazil 54,500

Vietnam 18,725

Colombia 9,500

Indonesia 9,325

India 5,100

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economics-101-brazil/

Arabica Coffee Production, thousands of 60 kilogram bags, 2010

to 2011 season

Brazil 41,800

Colombia 9,500

Ethiopia 4,400

Honduras 4,000

Peru 4,000

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economics-101-brazil/

Robusta Coffee Production, thousands of 60 kilogram bags, 2010 to

2011 season

Vietnam 18,150

Brazil 12,700

Indonesia 7,950

India 3,600

Cote d’Ivoire 2,100

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economics-101-brazil/

As the table shows Brazil is far and away

the biggest coffee producer, especially in

Arabica coffee and the second largest

producer of robusta coffee.

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economics-101-brazil/

Coffee economics have to do with supply

and demand and Brazil controls the major

part of the supply side.

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economics-101-brazil/

Current Coffee Prices and the Brazilian Real

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economics-101-brazil/

The Wall Street Journal recently published

comment about how a weak Brazilian

currency serves to drive down the price of sugar, coffee and orange juice.

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economics-101-brazil/

Sugar, coffee and orange-juice futures

tumbled Tuesday as a weak Brazilian

currency encouraged growers and exporters

there to sell the commodities onto already

oversupplied global markets.

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economics-101-brazil/

A weaker real encourages Brazilian

producers and exporters to sell their orange

juice and other products because they get

more of the local currency back when they

repatriate their dollar-denominated profits.

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economics-101-brazil/

Brazil is the world’s biggest producer of

sugar, coffee and orange juice.

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economics-101-brazil/

Brazil is a large and largely self-sufficient

country. Thus most things that people need

are available in Brazil and not imported.

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economics-101-brazil/

The cost of living does not go up or down

when the local currency suffers. But coffee is

priced in US dollars and when the real

becomes less valuable the value of coffee in

the Brazilian currency rises.

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economics-101-brazil/

Coffee economics 101 tells us that the value

of the Brazilian real helps drive the supply

side of the coffee equation.

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economics-101-brazil/

A Crisis in Brazil Means a Cheaper Cup of Coffee

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economics-101-brazil/

So, we know that a weak real leads coffee

farmers to sell coffee instead of storing it for

later.

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economics-101-brazil/

Where is the real going next?

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economics-101-brazil/

Forbes polled those with investment

experience in Brazil and currency risk in that

country.

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economics-101-brazil/

The biggest number of respondents, 32.8%,

think the real is going to R$4. Another

14.8% said it could weaken over R$4.

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economics-101-brazil/

A small number, 8.2%, think the real will hold

firm where it is now, which is closer to

R$3.30.

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economics-101-brazil/

Given the fact that the real is already

R$3.20, the market is more short the real

than it is long.

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economics-101-brazil/

The financial experts think that the real is

going to get weaker versus the US dollar.

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economics-101-brazil/

If that is the case coffee farmers in Brazil will

have little incentive to hold on to coffee and

will probably sell more into a market that is

already oversupplied.

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economics-101-brazil/

Coffee economic 101 implies that a cup of coffee will cheaper over the next year.

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economics-101-brazil/