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Brazil's coffee exports 'to fall further than had been thought'

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Brazilian coffee exports are poised for a bigger fall than had been thought, US officials said, cutting its estimate for this year’s arabica harvest, while noting too quality setbacks flagged by other commentators.

 

The US Department of Agriculture’s Sao Paulo bureau cut to 35.32m bags its forecast for Brazilian all-coffee exports in 2019-20, on a July-to-June basis, taking its figure 1.50m bags below the USDA’s official estimate.

 

The downgraded figure would represent a drop of 14.7% from the record 41.42m bags exported last season, a decline exceeded only twice, in percentage terms, in the past 20 years.

 

And the bureau’s forecast implies a sharp deterioration in Brazilian coffee exports from now on, with shipments for the first four months of the season, at 13.63m bags on data from merchants’ group Cecafe, running 4.1% ahead of the year-ago pace.

 

Indeed, the estimate would mean a 23% slump in shipments over the last eight months of 2019-20.

 

‘Lower agricultural yields’

In fact, the report does follow some signs of a decline in Brazil’s all-coffee shipments, which Cecafe pegged at 3.42m bags last month, down 13.1% year on year.

 

The bureau flagged the setback from “expected lower coffee supply”, cutting its forecast for Brazil’s coffee production this year to 58.00m bags – 1.30m bags below the USDA’s official estimate, although a higher figure still than that held by many other commentators.

 

The bureau cited “lower agricultural and de-husking yields than previously projected in the arabica growing areas”, where bean sizes had come in below average too.

 

The arabica crop was pegged at 39.90m bags, 1.10m bags below the official USDA figure, with this year’s robusta harvest estimated at 18.10m bags, 200,000 bags shy.

 

However, the bureau noted too some quality setbacks which have concerned some investors, saying while robusta specifications appear to be “average and similar to the previous season”, for arabica, “bean and cup quality are reported below average” by traders.

 

‘Out of supplies’

Arabica futures have been firm this month, adding 4.1% so far, reflecting ideas of declining Brazilian supplies for export, with Jack Scoville at broker Price Futures saying that “some exporters say they are out of previous crop supplies to sell”.

 

In Brazil itself, arabica prices on Wednesday reached R$475.80 per bag, according to Cepea, taking to 10.0% gains for November, and the highest since August 2017.

 

The research institute attributed the increase to, besides currency factors and stronger futures, “firmer demand, mainly for higher quality coffee.

 

“For larger-sized beans,” which it termed “prime coffee”, prices had been “even higher”, with premiums of up to $30 a bag.

 

‘Not new arguments’

However, Commerzbank on Thursday questioned the potential for further gains in New York arabica futures, saying that while “market observers point to the expectation of a supply deficit in 2019-20 due to the lower Brazilian crop… these are not really new arguments”.

 

Furthermore, while the revival in arabica futures had been supported by short-covering by hedge funds – a trend which reached a record level in the week to November 12 – this may now have largely run its course.

 

“Given net short positions are already quite low, the impetus from this side should abate.

 

“We therefore believe the upside potential for arabica coffee to be largely exhausted.”

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