Executive Summary and Implications
 The difficulty of assessing dry weather impacts on coffee has led to the market
underplaying the importance of the extreme hot & dry weather in Brazil.
 You have to go back to 1985 to find a prolonged dry spell of similar magnitude.
 The size of the current Brazil crop, which must be over 70 m. bags, has also led the
market to dismiss the importance of any crop downturn in 21/22.
 This is a mistake. The area in Sul de Minas and Mogiana which has suffered because
of the drought is responsible for just under 50% of Brazilís total arabica productionso
the dry weather in Brazil IS a big deal.
 The dry weather has not been general across the arabica area, with Cerrado and Zona
da Mata escaping the worst impacts of the dry weather. Although Zona da Mata is on
a large cyclical down-turn anyway.
 The normal cyclical downturn in total arabica production implies around a 20% drop
in production from the high to low cycle. This would have produced a record
downcycle-crop of around 42m. bags in 21/22, given arabica output of 52.0 m. bags in
the current year. This is now unachievable.
 A drop of at least 30% is now possible, giving an arabica crop of around 37 m. bags.
This may prove to be optimistic and it is very possible that the 21/22 crop could drop
to 35 m. bags or less.
 Larger trade houses have been reducing their crop numbers and the consensus on the
size of then 21/22 crop has shifted from +40 m. bags, to around 37 m. bags.
 Many farmers are looking at a down cycle production with a developing crop that has
been damaged by heat and dry weather. They will simply make a rational decision to
prune down the tree, sacrificing the 21/22 crop and obtain increased production in
the 22/23 and 23/24 crop year.
 The economics of coffee production in Brazil means that large farmers require a crop
of 80 bags per hectare or more to pay the harvesting bills. They would prefer to prune
down trees if high yields are unobtainable.
 A significant proportion of the arabica area will be out of production in 21/22.
 It will only be possible to have confirmation of the full scale of the damage to the
21/22 crop in Dec/Jan, after the full range of flowerings have fixed. There can be no
doubt, even at this stage that the damage is significant.
 Brazilís record crop should be large enough to supply the world in the 21/22 crop year
 However, around 70% of the 20/21 crop has already been sold forward and hedged,
along with around 25% of the 21/22 crop as well.
 The size of the 20/21 crop is therefore to a large extent already written into the
market, so a heavily reduced 21/22 crop, can have a large impact.
 Farmers will also hold back from releasing coffee as they become convinced that the
21/22 crop is much smaller than the market thinks. Any price rally will much less likely
to be capped by Brazil selling...........................