Brazil coffee output may fall, defying early hopes

Brazil's coffee output, which some have forecast at a record this year, may actually fall, breaking a long-term trend, officials said, giving weight to fears which have prompted a surprise rebound in prices of arabica beans.

Conab, the Brazilian crop bureau, in its first estimate for Brazil's 2014 harvest pegged it at 46.53m-50.15m bags.

The estimate, which followed an industry survey, raises the potential for a drop from last year's harvest, which it pegs at 49.15m bags, and is a far cry from figures of 60m bags common in the market earlier in the year as Brazil's plantations enjoyed apparently ideal growing conditions.

Indeed, 2014 is an "on" year in Brazil's cycle of alternate higher and lower output years, reflecting – albeit waning – dynamics in the harvest of arabica beans, which represent the bulk of the coffee crop, and of which the country is by far the largest producer.

Not since 1999-00 has coffee output in an "off" year beaten than in the previous "on" year.

'Global supply deficit'

However, the forecast follows mounting market talk that earlier production estimates may prove too optimistic, with Somar Meteorologia this week cutting its crop forecast by 3m bags to 51m bags, citing the strongest December rains in 90 years in Brazil's coffee belt.

Volcafe on Monday also estimated Brazil's coffee output at 51m bags, citing "disappointing fixation of flowers... due to high productive stress from two large crops in a row, despite textbook weather".

A harvest at this level would be insufficient to cover demand, with Volcafe saying that, on a global level, "our 2014-15 statistical balance becomes a deficit of around 5m bags, coming after two years of statistical surplus in 2012-13 and 2013-14".

Such concerns have driven up New York arabica coffee futures by more than 9% so far in 2014.

Care must be taken in comparing bean forecasts, with some commentators, such as the US Department of Agriculture, believing that Conab routinely underestimates Brazilian coffee production.

Volcafe pegs Brazil's coffee output in 2012-13 at 57.2m bags, 8.0m bags above the Conab figure.

'Adverse weather conditions'

Conab said that the threat of lower Brazilian coffee output this year reflected indeed the prospect of a lower arabica crop, which would at best reach 37.53m bags, down more than 700,000 bags year on year, with a potential fall of 3.2m bags.

The agency blamed the fall in part on a "lower planted area", reflecting the drop in prices to levels, in many cases, below the cost of production.

Overall coffee area, including that set aside for conilon (robusta) coffee, will fall 61,000 hectares to 1.96m hectares.

The agency also highlighted efforts to iron out the two-year cycle in arabica bearing fruit, and noted the impact of "adverse weather conditions, such as frost that hit the Paraná in 2013".

In the main growing state of Minas Gerais, Conab noted the "occurrence of continuous rainfall throughout the month of December", which had hampered farmers from, for example, fertilizing crops.

However, with rains also potentially boosting growth, it was too early yet to assume crop damage.

Robusta Coffee Falls Slightly in Europe -- Market Talk

Liffe's July contract is down 0.5% at $1,640/tonne. The International Coffee

Organization says in its December report that although prices in December rose slightly compared to

November, the ICO composite indicator is still at its second‐lowest level of the year, after

2013 recorded the lowest average annual price since 2009. Coffee prices fell consistently over 2013,

with decreases recorded in nine out of the last twelve months. "This price performance has been

driven by a surplus of production over consumption, as high prices in 2011 encouraged producers to

invest in and expand their output," says the ICO. "That trend has now been reversed, as prices fall

below the cost of production and deter further investment," it adds, noting however that demand

remains buoyant.

IBGE ESTIMA SAFRA DE CAFÉ 2014 EM 49,2 MILHÕES DE SACAS

O IBGE realizou em dezembro o prognóstico para a safra

nacional de café a ser colhida em 2014, que totaliza 2.950.210 toneladas (49,2

milhões de sacas) de café em grãos beneficiados, consideradas as duas

espécies em conjunto (arábica e canephora), acréscimo de 1,1% em relação à

safra de 2013.

    Para o café arábica, que representa cerca de 75,5% da safra brasileira de

café, o percentual de decréscimo de produção em relação a 2013 é de

1,9%. O Brasil deverá produzir 2.227.347 toneladas do grão, o que equivale a

37,1 milhões de sacas de 60 kg. Em 2013 que foi um ano de baixa, o país

produziu 2.270.874 toneladas (37,8 milhões de sacas). De 1992 até 2013, a

alternância de safras foi observada, sem interrupções (para a variável

quantidade produzida). Os anos pares foram de safra cheia, e os ímpares de

safra curta. Em 2014, o revés, se confirmado, se dará através da queda de

área total ocupada com café arábica (-4,4%) e da área destinada à colheita

de 1.525.498 ha (-3,2%), em decorrência da grande crise de preços

internacionais que se agravou a partir de novembro de 2012 e persistiu até o

final de 2013.

     Para o café canephora a estimativa inicial para 2014 é de que sejam

produzidas 722.863 toneladas (12,0 milhões de sacas), 11,6% maior que a

produção do país em 2013, em uma área a ser colhida de 464.321 hectares. A

área total ocupada com esta cultura é de 472.762 hectares (-17,5%).

O Espírito Santo, maior produtor nacional de canephora, deve concentrar, em

2014, 80,0% (578.205 toneladas ou 9,6 milhões de sacas) da produção nacional,

um aumento de 18,1% em relação a 2013.

9th. January, 2014.

The Chaparrastique volcano eruption in El Salvador has predictably done little damage to the new crop that is presently in harvest, but this crop due to damage caused by Roya or Leaf Rust is nevertheless now forecasted by the countries National Coffee Council to be 456,500 bags or 35.1% lower than the past crop.   This severe dip in production is apparently not as much related to Roya damaged trees, but to the more radical reaction to the problem on the part of the commercial farming sector of the country’s coffee industry that account for approximately 70% of the coffee farms, who have taken the route of either stumping their trees or replanting coffee fields with new trees, to more easily counter the diseased fields.  

This is however a rather dramatic dip in the new crop that has been forecasted by the National Coffee Council, as to date the majority of the private industry forecasts had been looking to an approximately 300,000 bags or 23% dip in the size of the new crop for El Salvador.  Only time shall tell, but in the meantime with production of fine washed arabica coffees surging in Colombia and with an approximate 6% increase forecasted for the New Crop in Honduras, this dip in production from El Salvador which is anyhow a relatively small regional producer, is not proving to be a concern for the consumer markets.

The first week of the month of January has proven to be relatively dry for the majority of the main coffee districts in Brazil, but with good ground water retention levels that have come with normal rainfall for the preceding three months, there are no concerns being voiced for the development of the new crop.  There are however conflicting reports from within the trade and industry in terms of this new crop as following the recent forecast from Volcafe that they have downgraded this crop from their initial 60 million bags forecast to 51 million bags, there are other private trade and industry forecasts still voicing a figure of close to 60 million bags.  Thus the very important to market sentiment Brazil crop factor remains a mystery, which shall only become clear by the third quarter of this year and is in the meantime a factor that shall undoubtedly bring forth volatility for the markets.

Meanwhile with the funds stepping in to buy into the New York market, this market has moved into a new trading range, but while the late in the previous year charts were pointing to a step up for this market, it is difficult to adjudge the appetite of the funds and it shall take a week or two to see if the new trading range can hold.    Especially so as there remain large volumes of new crop coffees from Mexico, Central America and Colombia and 2013 crop Brazil arabica stocks hanging over the market, which once the market steadies might start coming to the market and with the negative pressures of price fixation hedge selling.   But one might speculate that with price or premium differential price resistance on the part of the consumer roasters resulting in hand to mouth buying from many origins, that underlying roaster price fixation buying might well come to the fore to buoy the New York market against any negative correction and that the new trading range might well have a degree of substance.  Albeit that in reality and with unforeseen negative weather conditions for Brazil aside, that there is no sign of tight arabica coffee supply foreseen for this year. 

The Certified washed Arabica coffee stocks held against the New York market were seen reported to be unchanged yesterday, to register these stocks at 2,701,803 bags.   There was meanwhile a very modest 640 bags decrease to the number of bags pending grading for the exchange; to register these pending grading stocks at 9,263 bags.

The commodity markets encountered little in the way of striking news yesterday and focus was more related towards the influences of New Year repositioning of investment on the part of the longer term Index Funds, between selected markets.   There was however something of a negative influence coming forth with speculation that with upbeat economic figures coming forth from the U.S.A. that it might inspire a rate hike and some muscle for the dollar, which make market prices relatively more expensive in terms of the other currencies.   The New York arabica Coffee, Cocoa and Soybean markets nevertheless had a day of buoyancy, while the Oil, Natural Gas, Sugar, Cotton, Copper, Orange Juice, Wheat, Corn, Gold, Silver, Platinum and Palladium markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.62% lower, to see the Index registered at 507.43.  The day starts with a steady U.S. dollar trading at 1.645 to Sterling and 1.358 to the Euro, while Brent Crude is showing a degree of buoyancy in early trade and is selling at $ 107.50 per barrel.

The New York market started the day with modest buoyancy and followed by a dip into negative territory for the London market.  The New York market and with producer selling pressure side-lined continued to attract fund buying support and roaster buy stops coming into play, to build upon its gains into the afternoons trade, while the London market remained under pressure and encountered erratic trade within a lower range for the afternoon.   The London market continued to end the day with a late in the day recovery to close only modestly lower and having recovered 87% of the earlier losses of the day, while the New York market conversely ended the day on a very positive note and with 85.9% of the gains of the day intact and with the arbitrage having broadened to 43.24 usc/Lb., which equates to an attractive to the industry 35.76% price discount for the London robusta coffee market.    This close and with the London market having recovered late in the day might be seen to be somewhat positive for the markets and one might expect to see a follow through steady stance being taken for early trade today against the prices set yesterday, as follows:

LONDON ROBUSTA US$/MT           NEW YORK ARABICA USc/Lb.

                                                

 JAN      1725 – 3                                                             

 MAR      1712 – 3                MAR     120.90 + 3.65

MAY      1676 – 4                MAY     123.00 + 3.65

JUL      1648 – 18               JUL     125.20 + 3.75

SEP      1644 – 23               SEP     127.05 + 3.70

NOV      1642 – 28               DEC     129.65 + 3.60

JAN      1644 – 26               MAR     132.25 + 3.55

MAR      1646 – 29               MAY     133.75 + 3.50

 MAY      1651 – 29               JUL     135.20 + 3.40

JUL      1646 – 29               SEP     136.70 + 3.30