Nov 27, 2019 - Economy

Extremely dry conditions in Latin America are driving a surge in coffee prices

Local roasted coffee beans, Arabica, at the coffee farm La Victoria on August 19, 2016 in Minca, Colombia. The coffee is made for export. (Photo by EyesWideOpen/Getty Images)

Local roasted coffee beans, Arabica, in Minca, Colombia. Photo: EyesWideOpen/Getty Images

Extremely dry conditions in Latin America have led to a slowdown in coffee harvesting in Honduras, causing prices to surge 20% on the Intercontinental Exchange in recent weeks, the Wall Street Journal reports.

Driving the news: Coffee futures in mid-October were at $.93 a pound and have now reached around $1.157, spiking a total of 12% over two trading sessions last week alone, per the Journal.

The backdrop: Honduras is the third-largest producer of arabica coffee in the world and has a "disproportionately high influence on futures prices," according to one commodities brokerage firm cited by the Journal. It's here and in other arabica-growing countries like Peru and Brazil where dry conditions have taken a toll.

  • Coffee demand is expected to rise globally in the coming year. But the International Coffee Organization is forecasting a decline in world coffee production by 0.9%, to 167.4 million bags for the 2019–20 marketing year.
  • That is being driven by a 2.7% decline in arabica production, which is on pace to fall to 95.68 million bags.

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