Rabobank forecast rising arabica coffee prices, as Brazilian
production falls 13% in the 2017-18 season.
Following a Brazilian crop tour, Rabobank forecast the next
Brazilian coffee crop at 49.2m bags, down from 54.0m bags in the 2016-17 year.
Arabica crops are seen declining by 13% year-on-year, to
36.7m bags, while robusta crops rise 4%, to 12.5m bags.
But Rabobank underlined the fact that all the expected drop
in Brazilian output is down to the fact country's crops alternate on an
on-year/off-year cycle, due to the pattern of flowering and harvesting.
The 2017-18 crop being on an off-cycle, the 5.3m decline in
arabica production is actually "rather a mild drop," the bank said.
"In the past, when Brazil produced over 40m bags of
arabica, the following year saw a drop of often over 10m bags."
"Arabica trees were enjoying excellent health in all
visited regions," Rabobank said.
And the bank added that "the very high pruning rates
increase the prospect for a bumper arabica crop in 2018-19."
Tight market to
Still, the fall-off in production, at a time when stocks are
already tight, encouraged Rabobank maintained a price outlook for the first
half of 2017 "above the current market".
The bank last month forecast arabica prices during the April
to June period to average 152 cents a pound.
May arabica futures in New York are currently trading at
around 142.50 cents a pound.
Weather risks still
in the mix
"There are two main factors supporting arabica prices at the
moment," Rabobank said.
"One is the ongoing drop in the stocks to use ratio, and the
other is the strength of the Brazilian real."
Thus, given that Rabobank expects Brazilian production to
fall, and the real to remain stable, the bank retained a bullish price outlook.
And the Rabobank warned that given the low stocks level, any
weather event would have a "much higher impact on prices".
Rabobank's forecasts are lower than other private estimates,
despite the banks upbeat assessment of conditions.
Terra Forte, the Brazilian coffee exporters group, forecast
arabica production at 38.18m bag, some 1.5m above the Rabobank estimate.
But given that Terra Forte also saw the 2016-17 harvest as
bigger, the percentage decline forecast was the same, at around 13%.
"We tend to believe most market estimates are inflated
by the large amounts of exports that came from Brazil, and therefore our
estimates for the past and coming harvests sit marginally below market
consensus," Rabobank said.
Terra Forte was much more downbeat on robusta production
prospects, forecast down 5% year-on-year, at 9.88m bags.
outlook runs lower
Conab, the Brazilian crop supply agency, is even more
downbeat on prospects that Rabobank, although there is a marked trend for their
estimates to undershoot those in the private sector.
In its first estimate for the season, Conab saw total production
between 43.65m-47.5m bags.
Arabica production was seen between 35.01 and 37.89m bags,
while robusta was seen at 8.64-9.63m bags.