Coffee: understand the possible consequences of La Niña on the international market

In a report, Hedgepoint Global Markets addresses the consequences of the La Ninã phenomenon on the coffee market. This week, the CPC (US Climate Prediction Center) released an update on the direction of ENSO status for the coming months. According to the agency, there should be a brief transition period from the current El Niño to an active La Niña next month; the latter is expected to form in the June-August quarter.

According to Natália Gandolphi, Coffee analyst at Hedgepoint, for the coffee market, this changes the outlook a little, compared to previous expectations. This is due to the fact that La Niña was expected to become active earlier – which, for example, would eliminate part of the climate pressure for the development of the 24/25 harvest in Vietnam, which is currently suffering the impacts of El Niño.

Although prices have corrected with forecasts suggesting that coffee-producing regions in Vietnam would begin to see average levels of precipitation by the third week of May – and, indeed, some rainfall occurred in the Central Highlands – cumulative levels remain substantially below average.

“In addition, the moment also changes the focus to the Brazilian harvest, since the phenomenon should be active at the beginning of flowering for the development of the 25/26 harvest”, says the analyst.

The transition between the two ENSO statuses is expected to take longer than initially expected. With this, the focus turns to the 3rd quarter: in September, the phenomenon could generate water stress in Brazil, such as the impact on the 21/22 harvest – precipitation and temperature anomalies are highlighted in the maps in Figure 3, indicating the climate may become hotter and drier.

It is also worth paying attention to Central America, as La Niña could intensify the hurricane season in the region, and also to Colombia, with higher temperatures in some of the coffee producing areas. With the phenomenon continuing until the end of the year, in October, concerns decrease in Brazil, but remain in Central America. In Colombia, specific regions may experience a reduction in rainfall – special attention should be paid to the main harvest”, he highlights.

“In this scenario, the later transition between phenomena ends up bringing more concerns to Vietnam in the short term, while the highlight for Brazil should happen in the medium term, focusing on the 25/26 harvest”, he concludes.

In short

The US Climate Prediction Center predicts a transition from El Niño to La Niña next month. A late transition means that El Niño will still have more influence on the development of Vietnam's 24/25 harvest.

Despite some rain in the Central Highlands, overall rainfall remains below average. Attention also turns to Brazil's 25/26 harvest, as La Niña could cause water stress similar to what occurred in the 21/22 harvest, in September. Central America and Colombia may experience more intense hurricane seasons and higher temperatures, respectively.

While concerns ease in Brazil in October, they persist in Central America. This delay in the transition presents short-term concerns for Vietnam and medium-term attention for Brazil's 25/26 harvest.