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CEPEA: Consequences of Weather

CEPEA: Dry Weather in Brazil Concerns Arabica Growers

CoffeeNetwork (New York) – The latest report from Brazil’s Center of Advanced Studies in Applied Economics (CEPEA) notes that in September, the domestic and international arabica coffee markets were focused on the dry weather in Brazil. Low moisture and high temperatures dropped leaves in some regions. Besides, agents reported diseases at Cerrado Mineiro. Growers were concerned with the crops that had already bloomed, mainly the non-irrigated areas in São Paulo State and southern Minas Gerais. Long droughts may drop flowers and affect production, hampering yield potential of plants. In northwestern Paraná, however, rains in late August softened the problem.

The lack of rains and high temperatures, however, favored the harvesting end. At Cerrado Mineiro and northwestern Paraná, 100% of the beans were harvested last month, with only a little sweeping coffee left to be harvested. In southern Minas Gerais, Garça and Moagina (São Paulo State), activities were about to end in late September, with only 2% of the area in each region to be harvested. At Zona da Mata Mineira, there was 5% of the area to be harvested.

PRICES – In that scenario of uncertainty regarding the weather, future contracts of arabica coffee resumed increasing at the New York Exchange Stock (ICE Futures), pushing up the CEPEA/ESALQ Index of arabica type 6, hard cup or better (delivered in São Paulo city), in mid-September to levels near 470.00 BRL per 60-kilo bag in the spot market. This price rise increased the number of trades in that period.

On September 29, the CEPEA/ESALQ Index of arabica type 6, hard cup or better (delivered in São Paulo city), closed at 448.53 BRL (141.63 USD) per 60-kilo bag, a slight 0.63% up compared to that on August 31.

ROBUSTA – Irregular rains in Espírito Santo in September softened the dry weather in that state in September (rains at that stage are crucial for a good development of the 2018/19 robusta crop). According to agents consulted by Cepea, rains were enough to favor flower induction in all coffee crops – the volume of rains varied from region to region.

In the spot market, the pace of trades was slow last month, despite high demand, since agents were waiting for prices to increase. On September 29, the CEPEA/ESALQ Index of robusta type 6, screen 13, Espírito Santo State, closed at 396.28 BRL (125.13 USD) per 60-kilo bag, 2.62% down compared to that on August 31.

2017/18 CROP – On September 21, Conab (National Company for Food Supply) released the third estimates for the 2017/18 Brazilian crop, indicating production at 44.77 million 60-kilo bags of processed beans (arabica and robusta), 12.8% down against the 2016/17 season. For Cepea collaborators, however, the Brazilian production should be larger than that expected by Conab, between 48 and 50 million bags.

Regarding arabica coffee, production is estimated at 34.07 million bags, 21.5% down compared to that in the previous crop, due to the negative biennial cycle in Brazil. Besides, smaller screen and higher incidence of coffee berry borer in arabica beans reduced productivity as well and resulted in low acceptance by purchasers.

On the other hand, this robusta season should be larger than the previous one, because of better weather conditions during crop development. According to Conab, production should total 10.7 million bags this seasons, above the 7.98 million bags in the 2016/17 crop and similar to the 11 million bags expected by the agents consulted by Cepea.

Although initial forecasts point to a larger 2017/18 crop than estimates of Conab, there still is a lot of coffee to be processed and, with the screen and quality problems found at arabica beans, this final number may be reduced.

Alexis Rubinstein