Coffee prices rise, as FCStone sees drop in Brazil’s output

Coffee prices rose as INTL FCStone entered the debate over the Brazilian coffee harvest, the world’s biggest, by foreseeing a drop in production this year.

brazil coffee output

The US-based group pegged Brazil’s overall coffee output this year at 44m-45.5m bags.

The figure is a little more generous than that implied by an outline forecast in October, when FCStone’s CoffeeNetwork coffee analysis arm foresaw a drop of some 15% in production this year, equivalent to roughly 7m bags.

However, it does lave FCStone among the commentators forecasting a drop in Brazilian coffee output, from a 2014 level it pegs at 48m-49m bags.

Tricky forecast

Potential for Brazil’s coffee harvest this year remains shrouded in doubt, thanks to the prolonged 2014 drought which hurt potential not only for that year’s harvest but the 2015 crop too.

The coffee bean growth cycle is a complex one, starting with the growth of vegetation the previous year that will bear the cherries, and going through the weather-sensitive blossoming and flower-setting processes, before reaching the grain-fill stage.

Rains this year have eased concerns somewhat over the extent of damage, prompting a rising tide of production estimates which fuelled a slump of nearly one-quarter in arabica coffee futures in 2015 up to March 3, when the front contract hit a one-year low.

Volcafe in mid-February forecast a Brazilian harvest this year of 49.5m bags, up 2.5m bags on its estimates, while crop trader Olam International pegged the crop at about 50m bags.

However, some more recent estimates have been more downbeat, with analysis group Procafé two weeks ago pegging Brazil’s production this year at 40.3m-43.25m bags, while coffee trader Neumann last week estimated the harvest at 45.3m bags, a drop of 2.6m bags year on year on its estimates.

“Trade has now seen Brazil production estimates that range from about 40m-50m bags, and no-one knows what to expect once the harvest gets underway in a month or two,” said Jack Scoville at broker Price Futures on Wednesday.

Arabica vs robusta

FCStone in fact highlighted the prospect of a “larger-than-expected” drop in Brazilian production of robusta beans this year, after recent dryness in Espirito Santo, the top growing state for the variety, which was relatively untouched by last year’s drought.

Robusta output was seen dropping to 11.5m-12m bags.

The arabica crop was seen at 32.5m-33.5m bags.

However, FCStone acknowledged the uncertainty over this year’s prospects, flagging a “need for further analysis of field assessments in the weeks to come in order to provide better quantification of the expected volumes to be produced”.

Arabica coffee futures for May stood 2.2% higher at 140.25 cents a pound in morning deals in New York.

Robusta coffee for May was up 0.1% at $1,820 a tonne in London.