Prospects for Brazil's robusta coffee output have, thanks to
much-needed rains, seen a dramatic improvement – unlike those for arabica
production, which are being depressed by the hangover from last year's bumper
Conab, the Brazilian crop bureau, in its second estimate for
domestic coffee output this year pegged it at 45.56m bags – little changed from
an initial estimate in January which, at the middle of the forecast range, came
in at 45.58m bags.
However, the apparently flat figure disguised a marked
upgrade in expectations for the country's conilon, or robusta, harvest, now
seen coming in at 10.14m bags – a jump of 27% year on year, and ahead of the range
of 8.64m-9.63m bags previously guided to.
By contrast, arabica production in Brazil, the world's top coffee
producing country, was pegged at 35.43m bags, a drop of 18.3% year on year, and
close to the bottom of the range of 35.01m-37.88m bags that Conab guided to
four months ago.
The bureau said that the improved expectations for conilon
output reflected largely greater optimism for a recovery in output in Espirito
Santo, the biggest robusta-growing state, from two years of drought.
The Espirito Santo harvest was forecast at 5.89m bags, well above
the previous estimate of a harvest of 4.61m-5.30m bags.
"Unlike in recent years, in which conilon coffee crops were
affected by adverse weather conditions, this season rains came between December
and February, creating major changes in conilon crops as they went through
their growth phase," Conab said.
"From the end of 2016, climatic conditions improved," with the
impact on yields enhanced by a improved husbandry by producers, in the face of
relatively high prices.
By contrast, for arabica beans, in Minas Gerais, the key growing
state for the variety, production was seen dropping by 16.6% to 15.37m bags,
with output falling particularly fast in the key south and centre west region
of the state.
Here production will drop 20% to 16.63m bags, thanks to an "intensification
in pruning of crops that suffered most from the high yields of the last
harvest, or from frost damage", Conab said.
Many crops had been so-called "skeletonised", and cut back so
strongly that they are taken out of production for a year, but in a process
which helps them then bounce back strongly the following season.
Conab added that coffee trees in the region had "apparently
fared well" in the main growing season, after a strong second blossoming period
– but this after a first flowering spell which was hurt by drought, while more
recently there are reports of insect pests and rust fungus in some areas.
Conab vs other
Brazil's overall estimate of a 45.56m-bag is lower than
estimates from some other commentators, such as Rabobank, which has pegged
output at 49.2m bags, proving more generous on both robusta and arabica
Safras last week foreacast production at 51.1m bags, proving
particularly upbeat over arabica production, which it pegged at 39.6m bags.
Conab has a reputation for conservative production
Coffee prices tumble
In New York, arabica coffee futures underperformed, tumbling
2.1% to 131.65 cents a pound for July delivery in late morning deals, compared
with a 0.6% slide top $1,985 a tonne in London robusta futures – the opposite
dynamic than might be expected given Conab's revisions.
However, the market moves reflected a 7% slump in the real
to five-month lows against the dollar, after one of the country's leading
newspapers alleged that Michel Temer, Brazil's president, had been taped
endorsing bribe payments.
According to O Globo, Joesley and Wesley Batista - chairman
and chief executive respectively of Brazil-based JBS, the world's biggest meatpacker
- presented a secret recording of Mr Temer approving bribes to Eduardo Cunha,
the disgraced former speaker of the lower house, as part of plea bargain
A weaker real cuts the value, in dollar terms, of assets
such as coffee in which Brazil is a major player.
However, with Brazil by far the biggest exporter of arabica beans,
but behind Vietnam in robustas, it is the arabica market which is more
sensitive to movements in the real.