Chinese market crash creates coffee price drop

The International Coffee Organization (ICO) has reported that daily coffee prices reached their lowest level in 19 months in August. Despite rallying briefly at the beginning of the month, the ICO composite indicator average for August settled on 121.21 cents, 1.2 per cent higher than July but still the second-lowest level since January 2014. The ICO pointed towards China’s stock market crash and the subsequent devaluation of currencies in a number of producing countries as the likely reasons for the drop. Brazil and Colombia were among the countries that suffered as a result of the sudden devaluation of the yuan in August. The ICO said that the effect of the devaluation is to increase the remuneration on local currencies of coffee sold in US dollars, giving farmers and exporters incentive to release more coffee to the international market, even as the world price of coffee falls. Financially things deteriorated further in Brazil this month, with its government rushing to close a budget deficit that caused a major investment agency to down grade the countries credit rating last week. Standard & Poor’s downgrade caused the real to fall nearly 3 per cent to 3.9 per US dollars, a 13-year low, before backing off to 3.88 per dollar last Friday. The currency has fallen 31 per cent against the dollar this year. After a tough month in August, the Colombian peso began to make gains this week, up 1.3 per cent against the US dollar. Reuters reported that Latin America’s financial markets were recovering in response to a rise in Chinese stocks. Investors warned against too optimistic of an outlook after it emerged that the Chinese government has spent US$93.9 billion attempting to support the currency. The Colombian Coffee Growers Federation (FNC) reported that coffee exports reached 1.1 million 60-kilogram bags in August, representing a 24 per cent increase on the same period last year. However, the FNC released a statement last week revealing concern for the harvest for the second semester 2015. Colombian coffee growers are increasingly reporting on the negative effects El Niño is having on production.