- El Niño can move coffee prices well before any physical crop damage has been confirmed, due to speculation on future supply disruption.
- Indonesia’s robusta output fell by around 40% in 2023/24, while arabica production remained largely unchanged – highlighting how uneven El Niño’s impact can be even within one country.
- El Niño’s impact varies sharply by origin, meaning global market reactions can diverge significantly from conditions on the ground
El Niño has become one of the coffee market’s most familiar warning signals, often pushing prices higher before any physical crop damage is visible. That makes it easy to dismiss early market reactions as speculation.
But the reality is more complicated. Futures markets are designed to price future risk, and weather concerns in one major producing country can quickly influence global benchmarks. At the same time, El Niño does not affect every origin in the same way.
In some regions, it can reduce rainfall and damage yields. In others, the same climate pattern can have little effect or even create favourable growing conditions. The question, then, is not simply whether El Niño hurts coffee, but when market concern reflects a genuine supply threat – and when the narrative runs ahead of the agricultural reality.
The market reacts before the crop does
For coffee businesses, price movements can begin before there is reliable evidence of how production will ultimately be affected.
Forecasts for rainfall, temperature and crop development are constantly reassessed, meaning markets respond not only to conditions on farms today, but to what could happen months from now.
João Carlos Schmolz de Mattos is Commercial Director at the Latin American and Caribbean Network of Fair Trade Small Producers and Workers (CLAC). He says this disconnect between market expectations and physical conditions is inherent to how coffee is traded.
“The market prices risk. Higher risk means higher volatility,” he says. “The market operates with a forward-looking perspective – whether anticipating overproduction, the risk of supply shortages, or market stability.”
This dynamic has been documented in coffee before. Research from the University of Illinois examining 13 years of arabica futures found that prices ahead of Brazil’s frost-risk period were typically higher than prices later in the contract cycle. The premium averaged around 13% in September each year, falling to as low as 3% by May as weather uncertainty diminished.
El Niño presents a similar problem: the market must respond to risk before knowing whether it will translate into lower production. This is where legitimate risk pricing can begin to blur into speculation.
“Each player processes information differently; some rely on a solid foundation, while others are more susceptible to superficial data, with the latter often leading to a more speculative stance,” João says.
Coffee does not need to have been physically damaged for prices to move. Traders are instead attempting to calculate the probability that future supply could be affected, often months before the crop reaches harvest.
Research on commodity futures supports this distinction, showing that some trading positions respond closely to market fundamentals, while others can be influenced by noise or broader financial-market dynamics.
Faster information flows can amplify that uncertainty. João points to frost events in Brazil, drought in Vietnam and recent hailstorms in southern Minas Gerais as examples of weather events that can now be followed instantaneously.
“The challenge lies in accurately identifying what is actually happening – such as the extent of the damage caused by a specific event,” he says. “Local events often take on proportions far greater than reality due to social media.”
The risk may be real, but markets can begin pricing its potential impact before its true scale is known.
The physical impact is real, but intensely local
Different rainfall patterns, temperatures and microclimates mean the same El Niño event can produce very different outcomes within one country.
Indonesia, for example, demonstrates why dismissing El Niño as speculation would be equally misleading. USDA data show the country’s robusta production falling from 10.5 million 60kg bags in 2022/23 to 6.3 million in 2023/24. Severe weather affected major robusta-growing regions, while El Niño-related drought contributed to delayed harvesting in southern Sumatra.
But even within Indonesia, the impact was uneven. Much of the country’s robusta is produced at lower elevations, while arabica production – which saw no decrease in the same period – is concentrated in higher-altitude regions.
Nicaragua experienced something similar during the 2015/16 season. A USDA report estimated 13% below its initial production forecast, after higher temperatures and insufficient rainfall associated with El Niño affected the crop.
Yet, the actual impact was considerably smaller in Nicaragua’s mountainous coffee-growing areas, where cooler and wetter microclimates provided greater resilience – and resulted in only a 7% drop in coffee production for the year.
This is where the simple equation of “El Niño equals less coffee” begins to break down. Elevation, rainfall distribution, soil moisture and crop stage all influence whether an El Niño event translates into crop losses – and even two farms in the same country can experience very different growing conditions.
When market narrative and crop reality diverge
The difficulty is that these regional differences are often compressed into a single market narrative. El Niño may be treated as shorthand for supply risk, even though its actual effect depends on where coffee is grown and when key weather changes occur.
Brazil and Colombia complicate the picture further, showing that El Niño can sometimes create conditions that support coffee production rather than undermine it.
Recent Brazilian research found that rainfall can support yields during flowering and fruit development, but become detrimental if excessive rain arrives during harvest. In other words, more rain is not inherently positive or negative; its impact depends on when it falls.
Colombia provides an even clearer challenge to the assumption that El Niño necessarily reduces coffee production. Research published in Agricultural Economics found that El Niño periods were often associated with higher Colombian coffee production and exports, and lower real coffee prices.
At the same time, they found that El Nino-related shocks were relatively small compared with changes in international coffee demand – adding another layer to the difficulty of attributing movements in coffee prices directly to climate events.
For financial markets, however, waiting until all of these regional differences become clear is not an option. This is where a divide appears between people trading coffee, and those working directly within producing regions.
João argues that people in the physical coffee sector often have a detailed understanding of conditions within their own country or region, while financial participants tend to take a broader, forward-looking view of supply risk.
“I think that, above all, it is because they view the reality in their country or region without a global, forward-looking perspective,” he says. “They are generally focused on what is happening on the ground, rather than on future risks.”
That difference in perspective can create blind spots on both sides: markets may overstate the significance of an isolated weather event, while businesses focused on one origin can underestimate risks developing elsewhere.
That distinction becomes particularly important when El Niño enters the market narrative.
El Niño is neither an automatic supply shock, nor simply an excuse for speculation. Its agricultural impact depends on where coffee is grown, while its financial impact can spread across the entire market before those regional outcomes are clear.
For coffee businesses, the challenge is therefore not simply determining whether El Niño is “good” or “bad” for coffee. It is understanding where growing conditions are changing, whether those changes are likely to affect supply, and how much of that risk the market has already priced in.
