A confluence of weather, inelastic demand and the credit crunch may finally hit us all where it truly hurts…our morning coffee. Coffee, that magical drink many of us cannot imagine living without, is expected to rise in price from $1.1475/lb to $1.25-35 in coming months due to a weak crop in Brazil, the #1 producer and exporter. Worse still, some are predicting that demand for coffee - a relatively inelastic good that is still growing in popularity in many regions, including Brazil - will actually outstrip production and inventory. This may seem like a trivial problem to non-coffee drinkers. But interestingly enough, the situation encapsulates two topics we’ve discussed regularly here in recent months: the credit crunch and supply chain finance.

Coffee farmers in Brazil blame the credit crunch with preventing them from purchasing adequate amounts of fertilizer for their crops. Coupled with the down year of a 2 year coffee growth cycle and the expected yield drops from 46 million bags of coffee to between 36.9 and 38.8.

The fact that the credit crunch has spread to distant shores and cash crops with inelastic demand (and long-term fixed price contracts with buyers like Starbucks, but we’ll address that another time), is troubling. Perhaps with coffee’s massive global demand and high profile, high volume trading on futures exchanges, the production problems resulting from the credit crisis have come to light sooner than they would for other crops. If so, will we see price increases or shortages of other food crops in the coming months?

It’s just a hunch, but it would be interesting to see the quarterly numbers from the big agribusiness companies to see if there is indeed a discernible drop in sales. And it goes without saying, but I’ll say it anyway…the farmers and suppliers should be collaborating to explore their supply chain financing options. Keep the supply chain flowing, the store shelves stocked and the baristas busy…please!

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.