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Arabica coffee premium over robusta soars in Brazil, as crop worries mount

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The premium of arabica coffee over robusta beans has soared 20% this month amid growing worries over weather worries and a dip in fertilizer use curtailing 2020 prospects.

 

Brazilian arabica prices as measured by research institute Cepea hit R$440.51 per bag on Monday, taking to 5.5% their gains for September.

 

By contrast robusta, at R$289.36 per bag, was down 0.8% for this month.

 

Arabica’s outperformance which expanded its premium to robusta to R$151.15 per bag - up 20% so far this month, and amongst its highest levels of the past four years.

 

‘Growers are cutting costs’

The strength in arabica values comes amid growing concerns over the knock-on effect on production of these beans in particular from weather setbacks.

 

Cepea noted that “a large flowering has been observed in the robusta crops in Rondonia”, a major producing state for the variety, where dryness had earlier threatened blossoming, from which will form the cherries harvested next year.

 

In top robusta grower Espirito Santo “so far, the 2020-21 robusta crop is developing well”.

 

However, in arabica crops, “only occasional flowers have opened”.

 

In many areas of top arabica-producing state Minas Gerais, “rains have been low, and higher moisture is necessary for a larger flowering”.

 

 

 

The comments follow weather setbacks in Minas Gerais, which official crop bureau Conab highlighted on Tuesday, in a much-watched update on estimates for Brazil’s latest harvest.

 

Frost had caused “varying degrees of damage to crops by scorching the upper parts of trees”, the bureau said, although adding that this “did not directly impact the yield of beans produced in this [2019] crop”.

 

Conab also noted dryness in Minas Gerais since May – a theme taken up earlier this week by Cooxupe, the Brazilian coffee co-operative, which said that large areas of the state had not seen significant rainfalls, defined as above 10mm, since May 17.

 

‘Cutting costs’

Commentators highlighted too a reluctance of farmers to fork out for crop inputs at a time when weak prices had hurt returns.

 

Brazilian arabica prices set a five-year low of R$376.58 per bag in May, Cepea data show.

 

New York arabica futures in April touched 86.35 cents a pound, the lowest for a spot contract since September 2005.

 

“The low price level means that growers are cutting costs when it comes to maintaining their plantations, which is likely to negatively impact production in the coming season,” Commerzbank said on Wednesday.

 

‘Highly unlikely’

The bank added that in Brazil it is “thus not yet certain that the next high-yield year – as had been widely expected – will in fact see another record crop”.

 

“Some cooperatives, also citing the irregular weather, even believe this is highly unlikely.”

 

The current record, pegged at 61.66m bags by Conab, was set in 2018, the last “on” year in Brazil’s cycle of alternative higher and lower crops.

 

The 2020 harvest will also be an “on” year, with Conab on Tuesday pegging the 2019 crop at 50.92m bags.

 

‘We will not see a record crop’

Silas Brasiliero, president of the CNC Brazilian coffee growers’ group, has also raised doubts over a record domestic coffee harvest next year, highlighting factors including growers “lack of” financial resources, the dearth of rains in Minas Gerais, and the July frosts.

 

He flagged too “the emergence of rust”, a serious disease of coffee tree, after a humid and relatively warm winter.

 

With the reduced spending on inputs, “frost and atypical weather conditions, we have noticed leaf defoliation and yellowing in coffee plantations, which reduces productive potential” and meant that Brazil “will not see a record crop” in 2020.

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