BRAZIL CONTINUES TO SUFFER FROM REDUCED COFFEE CROP

Bloomberg reported Wednesday that Brazil, the world’s top Arabica exporter, is accumulating huge losses due to the consistently unusual weather, resulting in lower yields that threaten to prolong a global supply crunch.

Drought and cold disrupted flowering last season, and severe frosts in July 2021 forced farmers to cut down coffee trees at a time when the fertiliser needed for replanting was expensive. As a country that relies on imports for about 85% of its fertiliser needs, Brazil was hit hard by the war between Ukraine and Russia, which is a major exporter of fertiliser. This not only reduced last year’s harvest, but also the potential for 2022, which is supposed to be Brazil’s highest yielding cycle.

Luis Fernando Ferreira da Silva, a grower in Brazil’s top arabica-producing state of Minas Gerais, predicted that this season’s crop would be reduced by more than half due to last year’s drought and frost. He expected to harvest 8,000 60kg bags at first, but later reduced his estimate to 3,500 bags.

Now I believe it won’t reach 2,000 bags…It was definitely a year to forget.

Luis Fernando Ferreira da Silva, a grower in Minas Gerais (source Bloomberg)

According to a Somar Meteorologia report, only 0.6 millimetres of rain fell in Minas Gerais during the last week of July, or 17% of the historical average. In Brazil, Minas Gerais produces roughly 30% of the country’s arabica. Overall, the Brazilian Panel on Climate Change reported that the country could lose about 11 million hectares of agricultural land by 2030 as a result of climate change.

Arabica futures have risen by about 80% in the last two years when second-ranked producer, Colombia’s crop was also slashed by excessive rain. Brazil’s bleak outlook may keep coffee lovers and chains like Starbucks Corp. paying high prices.

Margarete Boteon, an agricultural researcher at the University of Sao Paulo, said, “Farmers believe there will be a significant crop failure in the current season,” compared to the previous high-yielding cycle two years ago.

Yields are lower than expected in most arabica regions, and the cherries are husky with smaller-than-usual beans inside, according to Regis Ricco, a consultant who recently visited the main producing areas. While the remaining crops are beautiful and leafy, yields have been disappointing when the fruits are processed into coffee beans, he said.

Consequently, more beans are required this year to fill a bag. While 420 litres of beans are typically required to produce a 60kg bag, harvest reports indicate that an additional 570 litres are now required, Ricco said. Brazil’s output this year may barely reach 32 million bags, down from 38 million bags expected in March and well short of the potential of around 53 million bags for the high-yielding cycle, he further added.

Farmers believe there will be a significant crop failure in the current season

Margarete Boteon, an agricultural researcher at the University of Sao Paulo (source Bloomberg)

Likewise, commodity research firm Taka Insights has forecast Brazilian Arabica coffee production for July 2023/June 2024 at 40.68 million 60-kg bags, only up slightly from the 2022/23 crop of 38.48 million bags currently being harvested. The company builds daily crop forecast models using remote sensoring and data from weather stations.

The current harvest results have also surprised Labareda Agropecuaria, a major producer in Sao Paulo’s Mogiana region. According to Gabriel Lancha Alves de Oliveira, the company’s commercial director, output is now seen to be 20% lower than expected at the start of the year. The additional reduction in its estimate means that the harvest will be 40% lower than its potential.

If that trend is confirmed nationally, it would signal an arabica crop below the preliminary expected potential.

Gil Barabach, Analyst, SAFRAS & Mercado

Private and cooperative warehouses are (sic) very empty which is uncommon for this time period.

Joao Prata Pereira, a partner in a Minas Gerais exporting firm

Conab, Brazil’s national supply company, estimated 35.7 million bags of arabica output this year in May, down from 38.8 million bags in January. While the estimate indicates recovery from 2021, the output will be 27% lower than the previous high-yielding crop cycle of 2020. On September 20, the agency will provide an update.

Lower yields indicate less supply available to process beans into washed arabica, which is expensive, and this will keep inventories low at ICE Futures US, supporting elevated prices, according to consultant Judy Ganes, who has toured Brazilian fields several times over the past year to assess crop health.

Photo by Patricia Monteiro/Bloomberg