Brazil coffee prices ‘underpinned’, despite improved crop hopes

Arabica coffee prices in Brazil should stay firm despite rising harvest expectations thanks to “low” stocks, Cepea said, touching on one of the biggest questions in the market – the size of the country’s inventories.

The institute said that weather in Brazil early in 2016 “may continue to be influenced by El Nino”, which has a large influence on rainfall patterns in the country.

“This scenario should be favourable to development” of the arabica coffee crop to be harvested later this year, with El Nino often bringing rains to top producing state Minas Gerais, although it should prove “unfavourable to robusta coffee”.

The El Nino is being blamed for persistent and yield-sapping dryness in Espirito Santo, Brazil’s top robusta-producing state.

‘Stock is low’

The benign weather outlook for arabica-growing areas is provoking “expectation of high production of arabica in Brazil”, Cepea said.

London-based soft commodities broker Marex Spectron last week forecast Brazil’s coffee harvest this year rising by some 8m bags to a historically high 57.5m-58m bags, of which 41.8m bags will comprise arabica beans.

However, Cepea said that Brazilian arabica values should nonetheless find support in depleted levels of inventories, sapped by strong exports in 2014 and 2015 – years of disappointing harvests.

“Stock is low, which should underpin domestic prices in 2016,” the institute said, citing as evidence of its case a rise in arabica values, as delivered to Sao Paulo city, to R$504.26 ($126.32) per bag the highest in more than a year.

Prices “surpassed R$500 per 60-kilogramme bag, a value not seen since October 2014”.

Balance sheet ‘anomalies’

Many coffee watchers have been surprised by the strength of Brazil’s exports, at 2.01m tonnes (33.4m bags) last year and 1.97m bags in 2014, according to official data.

Despite drought-depleted harvests in both years in Brazil – which consumes itself some 20m bags of coffee a year – exports beat the 2013 total of 1.70m tonnes.

Many commentators have said that the apparent anomaly is down, at least in part, to underestimates of the Brazilian harvest, which the official Conab bureau pegged at 43.2m bags in 2014 and 45.6m bags last year.

However, there are widespread ideas that Brazil’s coffee stocks were larger than thought too.

Cepea flagged an estimate from the US Department of Agriculture that Brazil’s coffee stocks will fall by 45% to 5.20m bags over 2015-16.

‘On’ year

Expectations for the 2016 harvest vary widely too, with many commentators less upbeat than Marex, despite rains early in the calendar year – a period which, after extensive drought starting early in 2014, and some shortfall last year, has become much-watched.

Brazil’s Conselho Nacional do Café producers’ group on Friday pegged output at 47m-50m bags.

The estimate reflects “the fact that the weather conditions have been favourable since the end of last year for the development of crops, different from the dry spells and droughts recorded in 2014 and 2015”, the CNC said, adding that its forecast followed plantation tours and interviews with contacts.

The group also noted that 2016 is an “on” year for Brazilian coffee, which has historically alternated between higher and lower production years.

Minas Gerais surge

Earlier last week, Brazil’s Instituto Brasileiro de Geografia e Estatística (IBGE) institute pegged this year’s Brazilian coffee output at 49.7m bags, including a 15.6% increase to 38.3m bags in arabica production.

“After two consecutive years of weather problems in major [coffee-growing regions]… the country’s coffee production is expected to recover in part and close 2016 with growth of 12.5% ​​over the previous year,” the IBGE said.

Minas Gerais output was seen soaring 21% year on year.