Brazilian food supply and statistics agency Conab, reduced Brazil’s coffee production estimate from a more optimistic forecast of 61.65m bags (60 kg), to between 50.48-54.48m bags in 2019, a reduction of 11.5-18%. It predicts that last year’s bumper production will result in carry-over stocks, which will especially affect arabica coffee due to its sensitivity to the biennial cycle of production, with production forecast to fall to between 36.12-38.16m bags. This occurence is due to mainly affect Minas Gerais, Brazil’s largest coffee producing region and responsible for over 50% of the country’s total harvest.

Meanwhile, Conab projects that robusta coffee production will grow by up to 15.2%, which would signify 16.33m bags this year, as it is not as sensitive to the biennial cycle.  Hence, coffee production in Espírito Santo, which is responsible for around 65% of Brazil’s robusta coffee production, is expected to remain similar to the previous year at between 12.48-14.73m bags.

Even so, Brazil is expected to remain the world’s largest coffee producing country this year, according to the International Coffee Organization (ICO). However, after falling to 12-year lows, the recovery of the country’s coffee price depends on the rain in the coming months.

The following DataLiner table shows the country’s best-performing coffee export origins for the last three years measured by TEU: 

Top coffee exporting ports | Jan to Nov 2016-2018 (TEU)

Supporting sources:

Brazilian 2019 coffee production forecasted to decline 11.5/18%

Brazilian food supply and statistics agency Conab has reported that Brazil’s coffee production is expected to decline in 2019 to between 50.48 and 54.48 million bags. Conab attributes the 11.5 to 18% drop from the 61.65 million bags the agency reported for the year prior to Brazil’s coffee plants recovering from an increased output in 2018, which is affecting Arabica in particular.

Arabica production is estimated between 36.12 and 38.16 million bags, presenting a comparative reduction to the last harvest from 23.9 to 19.6%.

Conab predicts Brazilian Robusta production to grow at a rate of 1.3 to 15.2%, with the possibility of reaching between 14.36 and 16.33 million bags. It attributes this growth to a favorable climate and not suffering as much from the biennial cycle as Arabica.

The state the phenomenon will most affect is Minas Gerais. Responsible for more than half of the coffee harvested in Brazil, Conab estimates the state will reach between 26.4 and 27.7 million bags, compared to 33.36 million the past harvest.

Espírito Santo, which is responsible for approximately 65% of Brazil’s Robusta production, is expected to harvest between 12.48 and 14.73 million bags, similar to the previous harvest, at 13.74 million bags.

Conab’s report echoes sentiments the International Coffee Organization (ICO) shared in its December 2018 market report, which predicted Brazil’s output at 58.5 million bags.
Despite Brazil’s decline in coffee production, the ICO says the nation will remain the world’s largest coffee producer in 2019

Coffee market awaits monsoon report from Brazil

Coffee prices have not seen any major recovery after having fallen to 12-year lows last year. The price movement of the commodity will now depend upon the rains in Brazil and how much it supports the new crop. The market is waiting for a clearer picture that will emerge in February.

In September last year, Arabica coffee futures in Intercontinental Exchange (ICE) had declined to touch 97.3 cents per pound, lowest since July 2006. Prices have been falling from 140 cents in 2017 due to good crop in three large coffee producing countries- Brazil, Vietnam and Columbia. At that time, the global crop was estimated to be 5.7 per cent higher without a similar growth in consumption.

The stock levels in the global market also had gone up after these large producers were selling off their produce to make most of the weak currencies. Global exports had reached record high levels when prices slipped to 12-year lows.

In the next two months, a slight recovery was witnessed in the coffee market. Multi-year low prices were attracting investor interest in the commodity.

However, prices have not seen any major recovery ever since. Arabica prices are currently trading around 102 – 103 cents per pound in ICE, which is just 5 cents more than the 12-year low levels.

‘Going ahead, much will depend upon the rainfall in Brazil and how it shapes up the crop in that country. Brazil has just started receiving rains. By February, we will have a better picture of the rainfall and the crop estimates too will arrive by then,” said Ramesh Rajah, president, Coffee Exporters Association.

Though Indian coffee is currently priced at a slight premium over the international rates, they are still much lower than the cost of production.

“An efficient zero-debt farm can produce a bag of Arabica for Rs 8000. But currently Arabica fetches only Rs 7000 per bag at the farm-gate level. The cost of production is not getting covered by the current price levels,” said Rajah.

However, farmers are holding on to their produce in anticipation of better prices. Hence the exports in the first half of the year is expected to be at least five per cent lower than last year levels. Lower prices and lesser carryover stocks due to smaller crop last year also will hit the exports this year.

In 2018, coffee exports from India declined 7.36 per cent on a year-on-year basis to 3.50 lakh tonnes. Initially when the rupee had weakened against the US dollar, exporters were shipping coffee in large quantities. When rupee fell to multi-year lows, the coffee stocks had started depleting. In the subsequent months, lower coffee prices as well as recovery in rupee rates led to shrinkage in coffee exports, leading to an overall decline.

The market is awaiting news from Brazil to understand the movement in the prices. “If Brazil has lower rainfall and smaller crop, prices can move up by 10 to 20 per cent. But on the other hand, if rains support a good crop, prices can further fall by 10 to 20 per cent. Indian prices too will follow the international trend,” said Rajah. If prices fall by 10 to 20 per cent coffee will once again see multi-year low prices in 2019.

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