Brazil coffee output may fall, defying early hopes

Brazil's coffee output, which some have forecast at a record this year, may actually fall, breaking a long-term trend, officials said, giving weight to fears which have prompted a surprise rebound in prices of arabica beans.

Conab, the Brazilian crop bureau, in its first estimate for Brazil's 2014 harvest pegged it at 46.53m-50.15m bags.

The estimate, which followed an industry survey, raises the potential for a drop from last year's harvest, which it pegs at 49.15m bags, and is a far cry from figures of 60m bags common in the market earlier in the year as Brazil's plantations enjoyed apparently ideal growing conditions.

Indeed, 2014 is an "on" year in Brazil's cycle of alternate higher and lower output years, reflecting – albeit waning – dynamics in the harvest of arabica beans, which represent the bulk of the coffee crop, and of which the country is by far the largest producer.

Not since 1999-00 has coffee output in an "off" year beaten that in the previous "on" year.

'Global supply deficit'

However, the forecast follows mounting market talk that earlier production estimates may prove too optimistic, with Somar Meteorologia this week cutting its crop forecast by 3m bags to 51m bags, citing the strongest December rains in 90 years in Brazil's coffee belt.

Volcafe on Monday also estimated Brazil's coffee output at 51m bags, citing "disappointing fixation of flowers... due to high productive stress from two large crops in a row, despite textbook weather".

A harvest at this level would be insufficient to cover demand, with Volcafe saying that, on a global level, "our 2014-15 statistical balance becomes a deficit of around 5m bags, coming after two years of statistical surplus in 2012-13 and 2013-14".

Such concerns have driven up New York arabica coffee futures by more than 9% so far in 2014.

Care must be taken in comparing bean forecasts, with some commentators, such as the US Department of Agriculture, believing that Conab routinely underestimates Brazilian coffee production.

Volcafe pegs Brazil's coffee output in 2012-13 at 57.2m bags, 8.0m bags above the Conab figure.

'Adverse weather conditions'

Conab said that the threat of lower Brazilian coffee output this year reflected indeed the prospect of a lower arabica crop, which would at best reach 37.53m bags, down more than 700,000 bags year on year, with a potential fall of 3.2m bags.

The agency blamed the fall in part on a "lower planted area", reflecting the drop in prices to levels, in many cases, below the cost of production.

Overall coffee area, including that set aside for conilon (robusta) coffee, will fall 61,000 hectares to 1.96m hectares.

The agency also highlighted efforts to iron out the two-year cycle in arabica bearing fruit, and noted the impact of "adverse weather conditions, such as frost that hit the Paraná in 2013".

In the main growing state of Minas Gerais, Conab noted the "occurrence of continuous rainfall throughout the month of December", which had hampered farmers from, for example, fertilizing crops.

However, with rains also potentially boosting growth, it was too early yet to assume crop damage.

New York coffee futures for March, which had posted small losses before the report, stood up 0.1% at 121.05 cents a pound at 07:00 local time (12:00 UK time).

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