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Poor start to Brazilian coffee crop prompts price recovery

08 October 2012

Press reports indicate that Brazil’s 2013 coffee crop got off to a bad start, ‘raising the risk of a disappointing crop’. This follows a poor-quality crop in the current season due to excessive rains. This bad news for Brazil has reportedly ‘fuelled a recovery of more than 20% in New York arabica coffee futures from a two-year low reach[ed] in mid-June’.

The International Coffee Organization (ICO), meanwhile, has suggested that strong demand for robusta coffee is likely to bode well for prices. This in part reflects the 2011 ‘off year’ in Brazilian production, where ‘overall coffee shipments have fallen by 17.5% so far in 2011-12’.  Coffee exports from Colombia are also down ‘to a multi-decade low of 5.6m bags’.

The scope for a rise in robusta coffee prices may also be an indication of ‘stronger demand for cheaper coffee’, in the light of the economic downturn. This contention would appear to be supported by a two-thirds decline in ‘stocks of robusta held against London futures’.  This being noted, the robusta coffee page of the Indexmundi commodities website indicates only a marginal 3.63% increase in prices between January and the end of July 2012.  However, this needs to be contrasted with the 21% fall in arabica coffee prices over the same period. From June to July 2012, average Arabica prices began to recover, increasing by 12.36% after 7 months of continuous price declines: at their lowest point in June 2012, arabica coffee prices were 29.5% below January 2012 average levels.

The principal beneficiary of the rise in robusta coffee exports has been Vietnam, accounting for 22.6% of world exports so far in the 2011/12 season.

In contrast, according to ICO, in Africa ‘exports have declined by [an] average rate of 2.2% a year’, with Ethiopia the only major African exporter ‘to show an increase in exports over the last 10 years’. 

Editorial comment

There is uncertainty overhanging the coffee market: prospects for Brazilian production appear to be improving, and the 2012 crop may potentially be a ‘normal’ year, with some 50.45 million 60-kg bags. It is currently too early to make an estimate for the 2013 crop. While it will be an ‘off year’ in the production cycle, analysts are expecting an average level of production for an ‘off year’.

This situation is, however, providing scope for speculation. A development which may cause some price volatility is the quality of the Brazilian crop. Here the key issue is rainfall patterns. Timely and consistent rains would boost the proportion of cherry-ripe fruit that can be wet-processed into higher-value washed coffees.

At present, three-quarters of Brazil's coffee production is arabica, while arabica prices are approximately 40% lower than they were a year ago when, according to Reuters, shortages of high-quality beans and fund investments pushed prices above US$2.80 per lb.

At present the main global coffee market issue relates to robusta production in Vietnam, where production could fall by as much as 9.7% in 2012/13 due to weather-related factors. This is a major issue since, in response to higher arabica prices, roasters have been using more robusta in their blends. According to the Volcafe group, robusta demand climbed 15% in 2011/12 (+9 million 60-kg bags).

During the period October 2011 to July 2012, Africa exported roughly the same amount of robusta as arabica (about 4.4 million bags of robusta and 4.2 million bags of arabica, according to ICO figures). Africa provides some 12.5% of world robusta exports and 7.7% of arabica exports. Over the same period (October 2011 to July 2012), African robusta exports have increased (up from 4.19 to 4.4 million bags), while arabica exports have decreased (down from 4.8 to 4.2 million bags). This reflects the re-entry of Côte d’Ivoire into the robusta coffee export trade, as well as a 37% expansion in Angolan robusta exports and the impact of weather-induced declines in East African arabica coffee exports.

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