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Re: drought hits the heart of coffee in Brazil
What ? A 60% reduction in the Arabica crop would indicate a production of 20 mln bags Iím not sure you want to stake your good reputation on such an outrageous number. The precipitation profile of this biennial crop to the end of August is below the previous biennial crop so a 41 mln bag Arabica crop is baked in. In the 18/19 crop September rains were 100 mm and October follow up rains were 200mm both months well above average. This year many areas have yet to register 30 mm or less than half of normal September rains. October starts dry and hot, not ideal conditions. By my calculations if we can reduce the crop 10% from the 41 mln bags we will set up a very bullish situation.So the weather definitely bears watching, but you know 100 mm can fall in 3 days and while not perfect could stabilize the situation until November when the rainy season becomes more pronounced. I do think the market is not according a proper risk premium at $1.15. If the market does decide to trade over $1.40 I think it will indicate a serious problem has developed. We have a very unusual monthly candle to date, the battle between bulls and bears is clear.
A couple of interesting points to add to the discussion:
1) Brazil exports through August 26.367 mln bags a year ago 27.175 better than I expected.
2) prices for Colombia and Central America 1.57 still a large premium whereís the coffee?
3) usda is calling for ending stocks of 41 mln bags yet no carry being offered. By the way storage costs are approx 1 cent a month.
4) performance of Starbucks and Dunkin Donut stock very respectable.
I donít see how 1985 was an analog year, production was down 10% you had the coffee stabilization agreement and large stocks. Yes there was a rally for 3 months but then prices collapsed to lower lows.
With all due respect I donít see how an outrageous forecast helps anyone.
Best of Luck!