Why Your Morning Cup of Coffee Will Cost You More

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Feb. 20 (Bloomberg) –- Citi Commodity Strategist Sterling Smith discusses how the drought in Brazil will effect coffee prices in the coming months. He speaks to Mark Crumpton on Bloomberg Television’s “Bottom Line. (Source: Bloomberg)

"we don't have a playbook to follow in the situation." how severe is the damage echo what will that mean for consumers?

We're looking at anywhere from 10%-30% of the crop being damaged.

If you look at the board, we have rallied about 65% from the lows we put in november.

This will mean we may not see it immediately, but higher prices for coffee down the road.

It looks like this will be how things are for a while now.

Your research goes back several decades.

Were you able to find an instance where things were this bad?

We did not find an instance where he drought occurred during the reproductive system of the coffee market.

We are at the spot where the bean is producing within the cherry.

A drought has never occurred during this time frame.

Is it possible to assess the amount of damage before harvest?

Only sporadically.

The coffee area in brazil is quite large.

They don't really have the manpower and techniques that we have your in the west to really go and look at it.

It there will be surprises coming as they start to harvest these crops in may.

The damage is going to be quite heavy.

Will the droughts diminish the quality of the copy ? the bean cracks inside the cherry when it gets dry.

That destroys the flavor.

It can still be used, but you lose a lot of the flavor, which is what you want from the coffee.

The next that that will happen is the copy chair he actually falls from the tree.

You have a total loss.

You mentioned arabica coffee watches.

What type of price ranges are using for each beingg?

Prices eased off a bit today, but they came back unchanged, which is a sign of a good, bullish market.

We could easily take prices over two dollars a pound if we see further damage.

We will not see any rain down there for at least 10 more days.

Further damage come we can take prices easily over two dollars.

If we see a 30% loss of the crop , over three dollars a pound is not out of question for the beans.

There aren't any problems with robust production right now.

That does not mean we will see perfect weather in vietnam.

It is not an understatement to say that for some in brazil in the copy region, these losses could be catastrophic.

They could be out of business.

-- copy region.

-- coffee region . if your harm has a complete and total loss, it is going to be a tragedy.

The severity of the drought is expected to cut into next year's coffee production as well.

How much do companies react?

That certainly is going to grow everyday.

We begin to see how much harvest we get out of this crop, it will be easier to tell whether our stocks will fall into a deficit.

Most likely we will and consume or copy this year than we grow.

That will force companies to raise prices.

Producers prune the trees very heavily this year due to the low prices we saw earlier in the season.

That regrowth is not happening.

Next year's crop will be small as well.

There is a two-year growth cycle in the coffee market.

We are and what is supposed to be the higher your production.

Next year we will be in a year that is inherently lower anyway.

Even if the price goes up, mayor consumers like their copy.

They will probably pay for it.

Correct?

Absolutely.

Copy is a very interesting market in that way.

-- coffee is a very interesting market in that way.

There is plenty of latitude for prices to go higher.

The commodity strategist at city.

Thanks for your time and expertise on this issue.

Anytime.

This text has been automatically generated. It may not be 100% accurate.

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