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Cecafe acknowledges Brazil coffee supply squeeze, as exports tumble

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Cecafe acknowledged a squeeze on supplies of Brazilian coffee, which it forecast would last for another three months, as it revealed an unusually large slump in the country’s exports, to a 21-month low.

 

The Brazilian coffee exporters’ industry group reported the country’s coffee exports, including processed and soluble products, last month at 2.70m bags – down 22% month on month, and the weakest figure since July 2018.

 

The decline was led by green coffee, shipments of which, at 2.42m bags, tumbled by 23% from January. Volumes were down 26% from those in February last year, although that was an unusually strong number, with supplies remaining strong following the record 2018 harvest.

 

Shipments of arabica coffee fell 28% year on year last month for their worst February performance since 2013.

 

‘Reduction in supply’

Nelson Carvalhaes, the Cecafe president, said that the extent of the month-on-month decline “reflects the shortest month of the year, with fewer working days” in February than in January.

 

February witnessed two days of Carnival national holidays in Brazil.

 

However, he acknowledged too a “reduction in supply” stemming from the 2019 harvest being a lower “off-year” one in Brazil’s cycle of alternate higher and lower production years.

 

“The 2019-20 crop was smaller than the previous one, resulting in a reduction in shipments,” Mr Carvalhaes said, foreseeing the slowdown lasting until the harvest of the 2020 crop, a cyclically large “on-year” one.

 

“Everything indicates that we will have a similar performance until June, when the off-season ends and the harvesting of the new crop begins,” he said.

 

‘Run out of coffee’

 

The comments reflect Cecafe’s first acknowledgement of a supply squeeze which some investors have been highlighting for weeks, and was cited by some in the late 2019 run up in New York arabica coffee futures.

 

Cepea, the Sao Paulo-based research institute - which three months ago warned of “concerns about the supply of arabica coffee”, the type which drives Brazil’s two-year output cycle – last week said that in Brazil “the coffee volume remaining is very low”, with what was left “mainly of higher quality arabica.

 

“In general, the amount of arabica traded this season is near 85% of the total in all the regions surveyed by Cepea” last month.

 

Earlier this week, Jack Scoville at US-based Price Futures warmed that in Brazil “many producers and exporters have run out of coffee in storage to sell”.

 

And Sao Paulo-based trader Commcor warned that “there is little supply”, a factor it saw as fuelling this week’s recovery in arabica coffee futures which, at 113.75 cents a pound on Wednesday, were up 5.9% for this week.

 

Divergence in opinion

Commcor also flagged “concern with coffee cultures in Brazil”, with some debate remaining about prospects for the 2020 coffee harvest – which some have pegged as high as 70m bags, but which statistics agency IBGE put on Monday at 3.42m tonnes (57.0m bags).

 

Mr Scoville noted market “concern that previous bad growing conditions have hurt production potential in the Cerrado, home of about 10% of all Brazil production”.

 

Cepea last week acknowledged the divided opinion on prospects, saying that its market research had revealed “opposite beliefs about the next Brazilian crop.

 

“Some of them believe that the flower and fruitlet drops in 2019 should reduce the harvest – although the crop may total 60m bags.

 

“Others, however, believe the high rains observed since November, mainly during the beans’ filling stage, helped crops to recover and should increase yield at coffee processing, which may boost the volume produced in 2020-21.”

 

‘Ongoing dryness’

Weather service Maxar forecast adverse weather for Brazilian coffee plantations in key areas for now, saying that “ongoing dryness across the central and southern regions will continue to keep conditions stressful this week and next”.

 

Further north, where excessive wetness has been an issue, moisture worries will not reduce “as of yet”, thanks to some further light showers.

 

“But increasingly dry conditions though the long-term forecast should bring coffee into a more favourable position.”

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