Brazilian coffee output fall in 2017 'may keep prices firm'

13.01.2017

A retreat in Brazilian production this year "may keep coffee prices firm", Cepea said, flagging expectations that the drop in output may be as much as 20-30%.

The research institute said that while Brazil and Colombian output is expected to show increases for 2016-17, stocks carried over into 2017-18 "are expected to remain tight", thanks to drops in output in  Vietnam and Indonesia.

"In addition, world consumption is expected to increase," said Cepea, which is attached to Sao Paulo University.

And looking ahead to the 2017 harvest, "even without official estimates of Brazilian production… initial signs already indicate that it should be lower".

'Off' year

A decline is expected largely thanks to 2017 being an "off" year in Brazil's cycle of alternate higher and lower producing years in arabica, and thanks to the knock-on effect of hard pruning too "carried out in the main coffee regions".

This process - often undertaken at times of low coffee prices, as evident for the early months of 2016 - boosts prospects of yield prospects, but at the expense of output even in the following season, with beans developing on branches grown the previous year.

However, Cepea researchers also flagged some delay to the start of the flowering process in September-October, which could disrupt development.

And for robusta, while noting rain relief to main growing regions such as Espirito Santo, after two years of drought, the institute was cautious over output recovery prospects.

Brazilian robusta production next year "should not reach large numbers", Cepea said, noting that many trees will take some time to recover from drought, "while others have even been uprooted".

The rains may actually prove more beneficial to the 2018 crop.

Low quality in demand

In fact, Cepea flagged expectations from market participants it surveyed that investors are "more optimistic" over arabica prices for 2017, after a year of fluctuations in 2016.

This includes an expectation that lower-quality coffee will retain relatively high values.

"The production of robusta should not recover and, with this, roasters should continue to look for the weakest arabica for blends" in place of robusta beans.

Production expectations

Cepea highlighted that the price outlook is "based on the expectation that the 2017-18 harvest will be 20%-30% lower than in 2016-17", a bigger drop than expected by some other commentators.

Brazilian coffee exporter Terra Forte on Tuesday, in its first forecast for domestic coffee output this year, after a field survey, pegged output down 12% at 48.1m bags, including a 13% drop to 38.2m bags in arabica output.

However, Procafe in November forecast a steeper drop in output of more than 20%, based on ideas that dryness over the previous year had curbed fertilizer applications, so restraining yield potential.

Trader I&M Smith said that while it was "early days to be forecasting the new 2017 Brazil arabica coffee crop, some concerns are developing, with some of the local trade already talking in terms of another dismal conilon robusta coffee crop.

"Contrary to this though, there are many who refer to the positive nature of the rains over arabica coffee districts for the past three months."


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