Coffee prices rally in Central America as El Niño-linked drought threatens crops

Premiums for Central American arabica coffee have risen to their highest in around three years amid an El Nino-linked drought that peaked in July and August in a region known as the Dry Corridor.

The drought prompted aid agencies to warn of a food crisis after the region's estimated 3 to 5 million subsistence and smallholder farmers suffered devastating crop losses in staples like beans and corn.

Premiums are paid over and above the benchmark global futures price KCc1 to account for quality differences, but they also reflect supply-demand dynamics.

Experts say elevated premiums in Central America, which accounts for 15% of global arabica supply, are putting a floor under world futures prices.

Reuters data shows premiums for Honduras COF-HON-NYC, Guatemala COFGT-NYC, El Salvador COFSV-NYC and Nicaragua COF-NIC-NYC are at or near their highest in more than three years.

Honduras and Guatemala's initial 2026/27 forecasts are for coffee output to fall 7% and 10%, respectively, but the two countries, which produce two-thirds of Central America's beans, have said they could yet adjust their estimates lower.

"Central America is unusually dry. (It) could well be our first insight into the possible effects of a severe El Nino," said independent coffee consultant Marc Schonland.

The Dry Corridor spans El Salvador, Guatemala, Honduras and Nicaragua. It has suffered debilitating droughts and storms over the past decade that have put the livelihoods of subsistence and smallholder farmers at risk.

Coffee is less affected by drought than corn and beans because it is a perennial crop with deeper root systems.

-Reporting by May Angel; Editing by Joyjeet Das/Reuters