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El Niño Guide for the Coffee Market - Part 1

Updated: Aug 23, 2023

The period spanning 1997 to 1998 marked one of the most potent #ElNiño occurrences on record, exerting a substantial influence across the globe, including within the #coffeemarket. This meteorological phenomenon resurfaced in 2015, triggering significant disruptions to coffee production in the East Asian regions.

Today, the El Niño event has been ongoing this year and there are some particular vulnerabilities that those of us active in the coffee market need to examine. In this 2-part article, we will discuss why we care about El Niño events, what El Niño is, and provide a detailed overview of the impact on the world's leading #coffeeorigins.

Why do we Care About El Niño?

At the end of the day, #coffee is an agricultural product. This means that it's growth and yield are tightly intertwined with weather conditions, which is why weather patterns are a key determinant for coffee #production and #prices. However, #weather "shocks" or unusual events can have a dramatic and immediate impact on prices in a short period of time.

Among the various weather events, El Niño stands as one of those major disruptive phenomena that influences rainfall and temperatures in a variety of ways in important coffee producing origins around the globe.

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El Niño's disruptive influence is particularly pronounced in the context of Robusta coffee crops, which bear the brunt of its impact due to Vietnam and Indonesia’s proximity to the Pacific, where El Niño originates. Meanwhile Brazil's coffee growing region (primarily Arabica) is largely spared from direct impact and sometimes can even benefit. The El Niño event is historically correlated to shifts in Robusta coffee yields, influenced by diminished rainfall and a prolonged dry season.

The effects of El Niño on Arabica coffee crops are less pronounced, with certain coffee origins even benefiting from this phenomenon, such as Brazil and some Central American origins. Some regions experience increased rainfall, notably the East Arican producing origins, whereas rainfall in Colombia can be somewhat reduced by the far-reaching effects of this phenomenon.

Positive or negative, bullish or bearish, no major coffee origin is impervious to the influence of El Niño, and so understanding the scope of the impact of El Niño on coffee origins is essential in predicting global price changes on a macro scale. However, it is also essential for understanding the micro impact, the Supply can change in specific origins impacting the quality, availability and differential pricing.

El Niño Explained

El Niño is primarily visible through disruptions in temperature and rainfall patterns around the world, but the cause is a cyclical change in sea surface temperatures within the central and eastern equatorial Pacific Ocean. Essentially the sun warms the water along the equator, the winds pull this warm water away and as it cools it sinks, creating a circular movement.

This occurrence often repeats at approximately three to four-year intervals.

El Niño - Source: World Ocean Review

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The elevations in sea surface temperatures initiate a peculiar event that transforms two key weather patterns: the Intertropical Convergence Zone (ITCZ) and the Subtropical Jet Stream. These transformation completely change precipitation patterns across various regions (including essential coffee origins) worldwide.

The Intertropical Convergence Zone (ITCZ) is a windy and rainy zone that becomes a focal point of change within this complex system.

El Niño exercises a pronounced influence on the ITCZ by reversing its normally westward movement and creating an eastward movement. Consequently, this shift diverts the rainy ITCZ away from East Asia (thus, away from top #Robusta producers #Vietnam and #Indonesia), leading to the displacement of the associated rainfall patterns that typically accompany it.

The Subtropical Jet Stream (SJS), a high-velocity current of air coursing through the upper reaches of the atmosphere and during El Niño episodes, the Subtropical Jet Stream becomes stronger and more active. This intensified state diverts moisture-laden air to northern regions encompassing Mexico and the United States, while the stronger wind shears can make hurricane formation less likely near Central America’s coffee areas.

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During normal years, the east #Pacific is cooler than its western counterpart, and so moist air would rise from the east (warmer) and descend on west (cooler). However, the elevated temperature gradient during El Niño events disrupts the conventional circulation pattern, altering the flow of rainfall.

The interaction between these phenomena changes weather patterns globally in major ways. Some regions witness an uptick in rainfall because of the reconfigured circulation patterns, while others are plagued with drought. In our next article, we examine the specific impact of el niño on the global coffee origins.

To be continued!

part 2 - El Niño Impact on Coffee Production: A Detailed Overview

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