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Coffee stocks in Brazil may be at or near all-time lows, but with a large – potentially very large – crop expected in 2018/19, international prices are likely to remain in the doldrums

Having been languishing at a very low level for months, the Arabica coffee price was not making headway as of mid-February 2018 as the Brazilian crop forecasting agency released its first estimates for the 2018/19 crop.

Conab expects a record-high coffee crop of between 54.4 million and 58.5 million bags of Arabica and Robusta, with some forecasts, such as one from Terra Forte, putting the crop even higher at circa 59 million bags (of which 15.53 million bags would be Robusta, up 40 per cent from 11.08 million in 2017/18).

As of early February the Arabica price had fallen back to around 120 US cents per pound after a minor surge around the turn of the year. As Commerzbank Research noted in a February 2018 report, only rarely has Arabica been priced so low in the years since 2010. Although the Robusta price has managed to gain somewhat since the beginning of the year, this is a drop in the ocean given the extent of its slump in 2017. In contrast to Arabica coffee, however, Robusta is at least still in the mid-range of the prices seen since 2010.

Brazil plays a pivotal role in the price of Arabica. The 2017/18 crop there proved disappointing, but from April 2018 onwards Brazil is due to harvest a crop that will be benefit from being the higher-yielding year in the two-year Arabica cycle. Even the mid-way point between these two figures would constitute a 25 per cent increase on the previous year’s disappointing crop.

Crop could top 60 million bags

Conab’s estimate for the Arabica crop in 2018/19 is for 41.7 million to 44.6 million bags. Only 34.2 million bags were harvested last year. Robusta is also expected to see a marked rise from 10.7 million bags to between 12.7 million and 14 million bags. Other observers such as Safras and the export company Comexim are even more optimistic, predicting 60 million and 61 million bags, respectively. Some observers have even forecast a crop of 65 million bags. Others believe that Conab’s estimate is too optimistic, pointing to the high temperatures that damaged coffee flowers in some Arabica areas last October. So although a degree of uncertainty remains, the forthcoming crop will almost certainly be a big one. Thus Conab, which is normally known for its rather conservative estimates, is in the upper range of current forecasts this time.

As Commerzbank noted, a good crop would lay the foundation for higher Brazilian coffee exports, which had fallen by 10 per cent to a five-year low in 2017. Price trends will also determine how attractive this is for suppliers, or whether they will be encouraged to hold back supply.

Coffee prices in the domestic market have also been affected by the prospect of a bumper crop in 2018/19, with data from the University of São Paulo’s Luiz de Queiroz College of Agriculture (ESALQ) showing that in spite of the lower than anticipated 2017/18 harvest Arabica coffee prices in local currency fell in 2017 compared to 2016, driven by expectations of the on-year of the biennial cycle of trees in 2018/19. Coffee prices in US dollars for July-October 2017 fell 8 per cent (US$ 142.37/bag) compared to US$ 154.33/bag during the same period in 2016, whereas the exchange rate appreciated roughly two per cent during the same period.

On the other hand, Robusta prices increased by five per cent during the peak of the harvest period (April-July) in  2017 compared to the same period in 2016, encouraged by estimates of low carry-over stocks from the previous crop and grower decisions to hold stocks for the current crop, thus limiting sales of newly harvested coffee.■ C&CI Read more

This article first appeared in the March’18 issue of C&CI, click on subscribe now if you wish to read the full story and other informative articles in the March and future issues of C&CI or log in here if you are already a subscriber. 

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