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CEPEA: Market Condition

CEPEA: Higher Production for Brazil’s 2018-19 Coffee Crop Should Put Pressure on the Domestic Market

CoffeeNetwork (New York) - The favorable climate for the development of the 2018/19 crop in Brazil and the positive biennial cycle should result in similar or even higher production than the 2016/17 season. In this scenario, domestic and external coffee prices may be pressed in 2018, according to researchers at Cepea, Brazil’s Center for Advanced Studies in Applied Economics.

Regarding the 2017/18 crop, still in progress, despite the lower supply in Brazil due to the negative biennial, disease and the lower grain sieve, the availability should be higher in the main producing countries of arabica and robusta. According to the USDA, production is expected to grow slightly in Colombia, accounting for 14.7 million bags of arabica. In Vietnam, the climate has favored the recovery of coffee plantations, which are expected to produce 29.9 million bags of robusta.

On the other hand, world stocks should be lower as consumption should remain firm. Thus, at the end of the 2017/18 crop season, inventories are estimated at 29.26 million bags, according to the USDA, 13.9% below the 2016/17 season. For Brazil, stocks at the end of the season are estimated at 2.56 million bags, 33.9% lower than those of 2016/17. Agents point to volume between 55 and 57 million bags. This scenario, in turn, may limit possible price declines throughout 2018.

As for the 2018/19 season in Brazil, although there are no official estimates of production, the first speculations already indicate that the harvest should be good, being able to surpass the 51.3 million bags indicated by Conab for the season 2016/17. Besides the positive biennial, rains since October have been more voluminous.

For Arabica, despite initial concerns with flowering, which were hampered in September by the drier climate, the return of rain in October has favored the development of the crop. This scenario, according to researchers at Cepea, renewed expectations for good production in 2018/19 and encouraged producers to move forward with good agricultural practices.

In relation to robusta, especially in Espírito Santo, the more favorable climate in the last months of 2017 allowed the recovery of the coffee plantations, which had been damaged by the drought of previous years. The December rains also increased the water reserves of the state and the humidity of the soils. In Rondônia and Bahia, production in the 2018/19 harvest is also expected to increase. In these states, producers have not had problems with the climate and coffee plantations are already in the stage of cherry filling.

Therefore, the rainfall in January and February will be essential for the good filling of the cherries of both varieties. In December 2017, the World Meteorological Organization indicated the formation of the La Niña phenomenon, which should extend into the first quarter of 2018. Despite the possible consequences in Brazil, the organization points out that the phenomenon is of low intensity.

Alexis Rubinstein