Thanks to a second year of drought in Brazil, your morning brew could be about to get tastier.
Prices of the caffeine-heavy, ashen-flavored robusta beans that are used to give a kick to coffee blends have been on a tear. Futures on the Intercontinental Exchange gained 40 percent during 2016 due to adverse weather in the crop's key producing regions of Brazil and Vietnam.
In Brazil's Espirito Santo state, there's been no significant rainfall in almost a month, forcing the government to impose irrigation limits, Bloomberg News reported Monday. In Vietnam, heavy rain during the peak harvest season resulted in large volumes of moldy beans, pushing total output down 13 percent from a year earlier.
Thanks to the subtly different geographies in which more aromatic arabica beans are grown, the same factors last year produced a modest 8.2 percent gain for that higher-quality variant. While the International Coffee Organization expects robusta output to drop by 3.7 million 60-kilogram bags from the previous year in the 2016-2017 season, arabica is booming, with production forecast to reach a record 93.5 million bags.
That combination of dearth and glut has meant that robusta's traditional discount to arabica has dwindled and, at times, disappeared altogether. Bags of robusta in Espirito Santo rose briefly above a local benchmark for arabica in October, then did the same again earlier this month.
While global benchmark contracts on the Intercontinental Exchange have shown more stable pricing, the spread there is narrowing, too, falling below $1,000 a metric ton in December for the first time in a year.
For one thing, espresso blends are normally 80 percent to 100 percent arabica -- Starbucks says it buys nothing else -- and the small amount of robusta that gets used is often there for good reason, such as to improve the crema on top of a short shot or to fuel a welcome caffeine kick.
The majority of robusta beans are used in instant coffee, which probably isn't connoisseurs' first choice. While lower prices may lead to more arabica beans making their way into the instant-coffee supply chain, the shift in markets isn't likely to make a big change to the high-end stuff.
There's another factor, too. Just 12 months ago, more than a third of the arabica in the Intercontinental Exchange's warehouses was less than a year old. That share is now down to less than a fifth, and close to two-thirds is between one and three years old.
Such old beans are priced at a discount relative to newer crops to account for their gradual loss of flavor. As the beans get older, they start finding their way into vending machines and bulk tins of instant rather than artisan cafes' roasting machines.
Arabica may have started out as the king of the coffee world. Age, that great leveler, is bringing it down to earth.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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