Coffee Weather Woes Spread to Central America -- WSJ Blog

Leslie Josephs

Weather woes are mounting for coffee growers and coffee lovers.

  Drought has taken hold in Central America, adding to worries over a drop in global production that

has already driven up prices for consumers.

  The most-actively traded arabica-coffee futures contract rose above $2 a pound on Wednesday, as

coffee production in the region appeared poised for another drop.

  While Central America produces about 10% of the world's coffee, growers there are already battling

a fungus that has reduced output. Meanwhile, the world's top coffee grower, Brazil, was hit with its

own crop-damaging drought.

  "The cherries are not filling up because of the lack of rain," said Nils Leporowski, president of

the Guatemalan Coffee Association, known as Anacafe, following a visit to coffee farms in the

country. The Guatemalan government declared a state of emergency in 16 of the country's 22 provinces

earlier this week as a result of the drought.

  A lack of water stunts the development of coffee cherries, which contain the seeds that are

roasted and ground to make coffee beverages. Often following a drought, the cherries will appear

healthy, turning a deep red color, but contain no seeds.

  The next harvest starts in October, and moisture during the traditionally rainy months in Central

America is key to the crop's maturation process.

  Exports of arabica beans from Latin America, excluding Brazil, are down 3.2% since this season

began last year, according to Anacafe, with double-digit drops in Guatemala, El Salvador, Nicaragua

and Mexico.

  The dry weather could push prices even higher, analysts say. Guatemala "could be just like

Brazil," said Jack Scoville, a vice president at Chicago brokerage Price Futures Group, adding that

prices could reach $2.20 a pound in the coming weeks. "The potential for lower crops this year and

next are decent."

Arabica-coffee prices are up more than 80% this year, a rally ignited by Brazil's drought.

  Growers in Brazil, the source of one-third of the world's coffee supply, will harvest between 5%

and 10% less coffee this year, according to trade groups and exporters.

  That will likely tip the world into its first supply deficit in three years in the 2014-15 season,

which starts in October, according to the International Coffee Organization.