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ANALYSIS: Massive coffee exports from Brazil won't be repeated this season

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Embrapa, the state-owned Brazilian agricultural research agency, said in January that Brazil exported a record amount of coffee (Arabica and Conillon) in 2020, 44.5m 60-kilo bags. Its total "differentiated" (superior or certified sustainable) coffee exports amounted to 7.9m bags, 4.4% higher year-on-year and the "highest volume in the last five years".

 

Total Brazilian production in 2020 was 63m bags according to Conab, the country’s agricultural statistics agency. The harvest this year, which starts around May, is likely to see a significant drop, to between 43.8m and 49.5m bags, says Conab.

 

Grupo Montesanto Tavares, a leading exporter, puts 2021’s likely crop rather higher, at 52.9m bags. On the other hand Neumann Kaffee Gruppe, the world’s largest cofffee operator, in December pegged 2021’s output at "several million bags" below the previous "off" year of 2019, which was nevertheless a good season with production of around 49m bags.

 

Last year’s La Nina-induced drought over parts of Brazil could seriously impact the 2021 coffee harvest; some analysts have been forecasting a "major failure" in what is another "off" year, when Arabica trees naturally produce less.

 

Shipping costs rise

 

In the US coffee processors are complaining about container transportation bottlenecks. Retail prices of soluble coffees (largely produced from Robusta coffee) could soon rise as shipping costs have risen about 15%. The bill for US sea-borne cargo imports in January rose to $6.4bn, 159% higher year-on-year, according to S&P Global Platts. The bottlenecks are expected to last well into the second quarter of this year.

 

The UN’s Food and Agriculture Organization (FAO) said today that world food prices rose for the ninth successive month in February, driven largely by jumps in the price of sugar and vegetable oils.

 

Arabica coffee futures have spent the past 12 months noodling around - a year ago the front-month on ICE was trading at around $1.21 per pound and today was about $1.31. Roaster inventories are comfortable according to the trade, as last year’s Covid-19 lockdowns cut into demand for Arabica, which is largely consumed out-of-home.

 

One third of world trade

 

Brazil accounts for about a third of the global coffee trade; its lower production this year - by how much is currently anyone’s guess - is one price-supportive factor. Meanwhile, in Vietnam, the world’s biggest producer and exporter of Robusta coffee, farmers are reportedly holding onto their beans; prices are too low and they are in a "wait-and-see" mode.

 

The International Coffee Organization (ICCO) estimates that global coffee output for the October 2019-September 2020 season was almost 169m bags, about 5m bags higher year-on-year. It expects the 2020-21 year to be some 172m bags.

 

For the 2021-22 year, global consumption is largely estimated to exceed production as the impact of Covid-19 recedes and demand, particularly for Arabica, gradually recovers.

 

Given gradual demand recovery, inflationary pressures, and the global surplus moving to a small deficit next year, the current moribund Arabica futures’ price could see a sharp upwards correction in the latter part of this year.

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