US, relatively, upbeat over Brazil coffee harvest

Brazil's coffee harvest will decline, but not by much as a record crop of robusta beans offsets some of the damage to arabica production from drought, US officials said.

The US Department of Agriculture's Brasilia bureau, in its first forecast for this year's Brazilian coffee harvest, pegged it at 49.5m bags, a decline of 4.2m bags.

While supporting the first drop since 1994 in output in a so-called "on" year in Brazilian coffee production, which alternates between higher and lower harvest years, the forecast is higher than that from many other commentators.

For instance, coffee merchant Volcafe has forecast a 45.5m-bag harvest, while Citigroup expects a 44.25m-bag crop.

'Good production potential'

However, the USDA bureau highlighted that Brazilian areas growing robusta beans - the type traded in London, and generally seen as being of lower quality – had not suffered the same degree of damage from drought as the arabica-growing heartland of Minas Gerais state.

The robusta crop was pegged at a record 16.4m bags, up 2.1m bags year on year, "primarily due to the good production potential in Espirito Santo, Rondonia and Bahia", the bureau said.

Early reports from the robusta harvest have been largely encouraging, although many commentators question how representative these results will prove.

'Prolonged drought… tree eradication'

 And the USDA office gave a relatively upbeat forecast, of 33.1m bags, for arabica coffee production, down 6.3m bags year on year on the bureau's own figures, but well above, for instance, the Citigroup estimate of 27.55m bags.

"The prolonged drought and high temperatures during January and February, especially in the states of Minas Gerais and Sao Paulo, significantly affected the filling and development of the beans," the bureau said in a report.

Furthermore, "contacts report significant tree eradication in the state of Parana as a consequence of last year's frost and low prices in 2013, thus reducing the production potential for that state".

Conab vs USDA

However, the report added that the extent of the hit from drought, and tree loss, was "unclear" for now and "will be available only after the harvest, when it will be possible to learn about the quality and weight of the bean".

The bureau also has longstanding reservations over estimates from Conab, saying that the Brazilian crop bureau's data, while taken by industry as a benchmark, may structurally underestimate output, and if plugged into balance sheets can imply negative stocks.

 Conab, for example, pegs Brazil's 2013 coffee production at 49.15m bags – 4.5m bags below the bureau's estimate.

Data ahead

The data actually come ahead of an upgrade on Thursday by Conab to its own production numbers, the first since January, before the heat damage had set in.

Then, Conab pegged the crop at 46.53m-50.15m bags, comprising 35.07m-37.53m bags of arabica beans, and 11.46m-12.62m bags of robusta.

At Citigroup, Sterling Smith forecast that Conab's estimate would "come in the lower range of expectations, and possibly sub-45m bags".

Arabica coffee futures for July stood 0.4% lower at 190.05 cents a pound  in New York at 06:00 local time (11:00 UK time).

In London, robusta coffee for July was up 0.1% at $2,131 a tonne.

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