#005 - Tropical Rains, Climate Change and Coffee Prices. What To Watch?

January is a key month for coffee prices…

Diving into the world of specialty coffee, we find a supply chain really fragile and exposed to climate change. 

It is widely known that Brazil is the main producer of coffee beans. However, few people realize that the production of high quality Arabica is concentrated in a small region. And that the rains of January and February are crucial to the beans’ formation. 

High-quality Arabica coffee beans are fragile and thrive in specific conditions: mild temperatures, good altitude, and just the right amount of rain. Brazil produces around 40% of global output, more than 2/3 of which in the regions of Minas Gerais and São Paulo. Think of rolling hills above 800 meters, where the soil and climate create beans with nutty, fruity, or chocolatey notes. This production is especially sensitive to summer rains in January and February. These are essential for the coffee cherries to develop properly.

Here is the annual cycle of a coffee plant: 

• Harvest in July, during the dry season; 

• Flowering in September; 

• Blooming in October; 

• Formation of tiny early fruits by December. 

• Filling stage in January, when the beans are plumping up with sugars and compounds that define quality. 

Adequate rain ensures even growth, larger beans, and better yields. If rains are scarce, beans stay small, yields drop by 10-20%, and quality suffers - more defects and lower cupping scores. Heat waves during this period can also worsen it, damaging cell development and leading to uneven ripening by July. 

Historical data shows a positive link between rain amounts and bean quality. But it is all about balance. Optimal annual rainfall for Arabica is 1,200-1,800mm, evenly distributed. 

Studies from 1992-2022 reveal that chill and drought stresses account for 66% of yield variations, with rain being a top factor: 

• Wet years (with 200+mm in summer), present good quality scores.

• 10% more rain during ripening can boost yields by 0.5% on average, improving bean density and flavor profiles.

• Extreme years (over 300mm/month) present fungal diseases like rust, dropping quality by 15-20%.

• While droughts correlate with 18-30% yield losses, as seen in 2024/25 when dry spells hit Minas and Sao Paulo.

Confusing, right?

Then, the climate has become even more unpredictable. 

Historical data shows wetter wet seasons but prolonged dry spells, exacerbating droughts in coffee zones. For example, 2024 saw below-average Jan-Feb rains in southern MG, cutting productivity by 9-13%. This shift aligns with global trends: more intense rains, but uneven, stressing plants. In SP, annual rainfall has increased by 50-250mm in some areas and become more extreme - about 10% more very wet or dry events. The number of days with over 100mm rain jumped from 40 in the 1960s to 60+ per decade recently, leading to irregular distribution. 

Summer Rainfall from 2021:

Credits to Antonio Sergio, coffee grower, and noticiasagricolas.com.br

What's expected for 2026? 

La Niña is expected to bring above-average rains. If patterns hold, this could support good bean development for the next crop.

Frankly, no one knows!!

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Weekly Coffee Market Update: 

Coffee markets showed mixed signals amid supply concerns and currency shifts. 

NY ICE Coffee C futures +2.0% weekly, closing at 357 cents/lb. 

Brazil's B3 arabica futures -0.44% weekly, closing at 425 USD. 

BRL/USD FX rate +2.22% weekly. 

Freight proxy for 20' container Santos-Rotterdam held steady at ~$1,600.

Key News Highlights (Last Week):

1. Brazil's 2025-26 arabica crop projected 13% lower due to drought and erratic weather.

2. Mixue launched in US, tapping affordable beverage demand amid inflation.

3. Global coffee volatility expected in 2026 from low stocks and climate risks.

4. US consumers face sustained high prices post-tariff reset on Brazilian imports.

5. Keurig Dr Pepper's $18B merger with JDE Peet's creates global coffee giant.

6. PepsiCo acquires Poppi for $1.95B, boosting functional beverage portfolio.

7. Java Holdings buys +Peptide, expanding into functional nutrition.

8. Caribou Coffee relaunches Cinnamon Sugar lineup with new breakfast items.