

The price of coffee futures has skyrocketed because of a major drought in Brazil. (Reuters/Juan Carlos Ulate)

Usually during this time of year, the delicate Arabica coffee plants in the mountains of Brazil, where most of the world's coffee comes from, are maturing. White, fragrant flowers have appeared, followed by cherry-like fruit, each containing two seeds: Arabica coffee beans, the most popular in the world.

But last month, the worst drought in decades hit Brazil's coffee belt region, destroying crop yields and causing the price of coffee to shoot up by more than 50 percent so far this year. The drought is historic, with more than 140 cities in Brazil forced to ration water. The country's leading newspapers reported that some neighborhoods are receiving water only every three days.

For now, retail prices for coffee are stable. Roasters typically have enough supplies to cover themselves for a few months. But if the price of the Arabica (pronounced uh-RAB-ick-uh) beans continues to rise, consumers could start seeing the cost of their morning coffee creep up later this year, according to Jack Scoville, a futures market analyst specializing in grains and coffee, among other commodities.

You can see the dramatic rise in the price of coffee due for delivery in March below. On Wednesday, the price per pound reached the highest point in about 14 months at $1.72.



The price of Arabica coffee for March delivery has risen dramatically so far this year on the ICE Futures U.S. exchange. (Source: IntercontinentalExchange)

Even before the drought began, though, there were concerns that there would be a global coffee deficit. At the beginning of the year, a closely-watched report by a commodities trading firm noted that the global coffee market could face a shortage for the first time in three years. The report predicted that coffee supplies will be about five million bags lower than consumption for the 2014-15 season.

The prediction was an about-face from what experts were saying at the end of last year, when there appeared to be a coffee glut. There was so much coffee last year that Arabica coffee futures fell by nearly 25 percent.

Over the long run, though, experts say that the price of coffee will rise for one simple reason: more people in developing markets like Brazil, India and China are acquiring a taste for it.

"Regardless of what happens in Brazil now...we will see higher prices and more competition for higher-quality coffee," said Kim Elena Ionescu, a coffee buyer and sustainability manager for Counter Culture, the influential North Carolina-based coffee roasting company.

Ionescu said it used to be that the developing world made coffee, and the developed world drank it. But now, countries like Brazil that traditionally only produced coffee are starting to consume it, too.

"More people are drinking coffee," said Ionescu. "And more people are drinking better coffee."

She added that coffee production is hard to mechanize, and so it's likely that demand will continue to outstrip supply.

On top of that, there are concerns that climate change could damage supplies, as well, with some pointing to Brazil's drought as evidence of the more extreme weather becoming the norm.

"What we are really seeing as a company as we look 10, 20, 30 years down the road – if conditions continue as they are – is a potentially significant risk to our supply chain, which is the Arabica coffee bean," said Jim Hanna, Starbucks' head of sustainability, in an interview with the Guardian in 2011.

And for those who like sugar with their coffee, the drought in Brazil, which is also the world's biggest producer of sugar, is disrupting plans for harvesting sugar cane. Futures prices for sugar are at nearly the highest level in two months.