PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 11:25 UK, 8th May 2014, by Agrimoney.com
Brazil coffee prices hurt by 'good' early harvest

Brazil's coffee harvest, of robusta beans, has offered surprising good early results, with quality rated "good", and raising questions over the extent of the rise in futures prices.

Growers in Brazil's Espirito Santo state - which produces some 75% of the country's conillon beans, a robusta variety say that their crops "developed well" despite the drought which gripped much of the country earlier this year, Cepea said.

Indeed, a survey of the state's growers by the influential research institute showed that crop "that was already harvested presents good quality".

And the impact was being felt on markets, where the first sales from the harvest "have been traded at the same prices as those of the crop before", said Cepea, which is linked to Sao Paulo University.

Cash vs futures

Indeed, Cepea data show conillon beans trading at R$257.57 per 60-kilogramme bag in the domestic market on Wednesday, up 3.2% year on year.

In dollar terms, prices are down 7.4% to $116.02 per bag over the past year.

"This scenario is different from that observed for futures contracts," Cepea said.

London robusta futures for May were standing at $2,131 a tonne on Thursday, up 9.0% year on year on a spot contract basis, with the second-in July contract at $2,125 a tonne, a gain of 6.1% a year on year.

Worse to come?

Coffee futures have been sent soaring by concerns over the impact of drought on Brazilian production, with talk of a crop well below the 60m bags that had been talked of late last year.

Citigroup two weeks ago cut its forecast for the overall harvest to 44.25m bags, with Brazil's Conselho Nacional do Café producers' group pegging the crop at 40.1m-43.3m bags.

However, commentators urged caution over reading too much into the early results from Espirito Santo, where many see crops having fared relatively well.

Indeed, Citigroup, in its harvest downgrade, pegged Brazilian conillon production at a strong 16.7m bags, with the output of arabica, of which the country is the top grower, pegged at 27.55m bags.

Official Brazilian crop bureau Conab in January estimated the country's conillon output at 11.5m-12.6m bags, including 8.62m-9.52m bags in Espirito Santo, and arabica production at 35.1m-37.5m bags.

'Still early days'

"It is still early days for the coffee harvest, and it does seem that Espirito Santo has not suffered as much as many parts of Minas Gerais," the core arabica producing area, a London trader told Agrimoney.com.

In fact, parts of Espirito Santo suffered floods in December, just before drought set in.

"We may see the results being reflected more in spreads between robusta and arabica beans for now rather than in the flat prices," the trader said.

In Espirito Santo, the Incaper research institute, which on Wednesday pegged the state's conillon crop at 9.4m bags, up from 8.2m bags last season, has highlighted that northern parts of the state received some rainfall, limiting the impact of drought seen more severe in Minas Gerais.

'Speculative thirst sated'

In fact, arabica and robusta beans were trading broadly in line on Thursday, with arabica for July losing 1.0% to 199.05 cents a pound and robusta for July 0.9% lower at $2,125 a tonne.

"News flow continues to be generally slow for the arabica," said Sterling Smith at Citigroup.

While weather "continues to be seasonably dry, for the moment the speculative thirst for coffee appears to be sated".

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