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Are rains too late to save Brazil's coffee crop?

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The year 1985, which witnessed the Live Aid concerts, and Mikhail Gorbachev's assumption of leadership of the Soviet Union, is remembered by coffee investors for a different reason – drought.

A lack of rainfall that year sent the country's coffee production the next year - which had started off with hopes of a 38m-bag crop, and with some talk of hitting 40m bags - down to 13.9m bags, a slump of 58% year on year.

Investors are examining the results of that episode, which saw the rainy season kick in in mid-November, some two months late, for clues for what might happen this year, when plantations are amidst a drought that kicked in during January.

With both Commodities Weather Group and Somar talked on Friday of rainfall, at last, next week for coffee-growing areas, does this mean that a 1986-style crop disease can be avoided, nearly 30 years later?

Useful comparison?

Judith Ganes-Chase, the influential soft commodities analyst, takes a somewhat cautious view of rain even now sparing Brazil severe crop losses in 2015.

Sure the rains this year appear to be coming a month sooner than in 1985

"But how much of the damage was done by October 31 or October 15 or even October 9?" she says., actually speaking before the latest weather updates.

"Simply because it only started to rain then in November does not mean that extensive damage did not occur sooner."

And trees that year came into the late-year drought in better condition than this time.

"They had not endured eight months of prior abnormal conditions and a lack of fertilizer," she says, with drought already having cut output this year to some 47m bags, from the figures of 60m bags which had been initially expected.

Double density

In fact, the comparisons of this year with 1985 are somewhat superficial, she tells noting, for example, the greater planting densities now than then.

"Now there are 2.5 times as many trees per hectare than then. That means the same area is providing nutrients for more than double the number of trees."

And, thanks to the lack of moisture, which is needed to transfer fertilizers, applied on the surface, into root systems, there are not many nutrients around.

Even if the nutrients were in the soil already, trees would have difficulty absorbing them.

"Roots go down about 1.5m. In some areas, the water table does not start until 2.68m below ground level."

'One factor after another'

The drought means that there is "not normal vegetative growth – trees are starting to defoliate", at a time when they should be bearing blossoms which develop into the cherries to be harvested next year.

And even where there have been some rainfall, encouraging flowering, a lack of follow-up rainfall has meant that blossoms have aborted.

"It is just one factor after another," says Ms Ganes-Chase, president of J Ganes Consulting.

"If the trees were in an ICU, they would question whether to provide life support and if the patient could recover.

"I am not an agronomist, but just being practical, I do not see any possible way that the crop can be spared from serious harm at this point in the affected areas, especially without irrigation."

'Lousy quality'

As for how much harm, some forecasters are talking of a crop from arabica plantations, where drought damage is centred, of 20m-22m tonnes, she says.

Adding in 17m bags or so of robusta coffee would fail to take the total crop next year even to 40m bags – well below even the 2014 crop, let alone Brazil's production potential of 60m bags.

And the poor 2015 prospects come at a time when, unlike this year, Brazil will not have decent stocks coming into the season – in quantity or quality.

"Just because you might have 12m bags in stocks does not mean it is good quality. In fact the quality of the crop we just harvested is lousy."

Curse in disguise?

The upshot is that "prices have to go higher," she says.

"Markets will have to way up and ration demand."

But if that sounds like good news for growers, who a year ago were complaining over lowly values, it may not be.

"Some producers will make a quick windfall. But always on the other side of booming prices is a long, protracted bear market.

"Every producing country sees this rise in prices as a signal to produce as much coffee as they can.

"The higher prices go, the more bearish the other side will be."


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