coffee futures news

coffee futures news

May 20th, 2016

Brazilian coffee production will soar by 13% this year, but remain short of all-time highs, with a drop in the drought-hit robusta crop offsetting a rise in arabica output to a record top.

In its first estimate for the 2016-17 crop, the US Department of Agriculture’s Brasilia bureau pegged it at 55.95m bags.

That would represent an increase of more than 6.5m bags year on year, but fall short of the record 57.6m-bag harvest reaped four years ago.

This increase is forecast being led by arabica beans, for which the bureau forecast output soaring from 36.10m bags last year to 43.85m bags  – eclipsing the highs of 42.1m bags set in 2012.

Arabica yields are expected to increase due to “good blossoming between September and November 2015 in all producing regions and overall good weather conditions during fruit setting and development”, the bureau said in a report.

Indeed, there is potential for further upgrades yet to the arabica top, “due to expected above-average de-husking yields and quality of the beans” expected to emerge as harvest progresses, with beans expected to be of larger average size.

Coffee Futures: ‘Prolonged dry spells’

However, robusta output was projected to fall by 9% from 13.30m bags in 2015-16 to 12.10m bags this time – a seven-year low on USDA estimates.

The bureau pointed to “above-average temperatures and prolonged dry spells in Espirito Santo,” Brazil’s top robusta-producing state, that will “again jeopardize production potential.

“In addition, water shortages remain an issue for the state, thus limiting the use of irrigation on coffee plantations.”

Coffee Futures: Market expectations

Other estimates released through the week also point to a bumper coffee crop in Brazil. Marex Spectron, the UK-based brokerage firm, forecast a 2016-17 crop of 56.6m bags, up 13% year on year.

Safras e Mercado, the Brazilian crop forecasting firm, expects output of 56.4m bags, up 12% year on year, due to “more favourable rains earlier in the season”.

Nonetheless, the USDA bureau forecast a pullback in Brazilian coffee exports in 2016-17, on a July-to-June basis, despite the higher production, a reflection of the depletion of stocks thanks to the knock-on effects of disappointing output and strong shipments over the past two years.

At 35.2m bags, exports next season will fall “slightly” on the 2015-16 estimate of 36.0m bags “due to expected lower [carry-in] stocks”.

Coffee Futures: Higher costs

The recent drawdown in Brazilian stocks – which the bureau estimates will end this season at 2.26m bags, the lowest figure but one on data going back to 1960 – has been encouraged by weakness in the real, which makes the country’s exports that much more competitive.

However, the depreciation has helped swell production costs “significantly” too, encouraging inflation and boosting the price of imported goods.

Producer costs in Minas Gerais, the largest producing region in Brazil, rose by 34% year on year for the last harvest.

In particular, costs were pushed higher for key inputs of machinery (up 205%), labour (up 67%) and fertilizers (up 23%).

- Agrimoney.