SAO PAULO (Reuters) - The drop in coffee supply, with a weaker Brazilian crop, and resilient global demand are expected to contribute to “strong emotions” in the market this year, as the world emerges from the pandemic and consumption is boosted , said the president of the Council of Coffee Exporters in Brazil (Cecafé).
In an interview with Reuters, Nicolas Rueda commented that it is still necessary to know exactly how much the 2021/22 arabica crop will be reduced by a severe drought last year, which affected the flowering of the trees that would already be in the low year of the biannual cycle. But he assured that, on the demand side, there is “a very positive story”.
Rueda, a Colombian who is also in charge of the operations of the trading company Volcafé for South and North America, drew attention to a different market in 2021 after Brazil - the largest global producer and exporter - harvested its best crop, in terms of volume and quality, in the midst of a pandemic, factors that pushed prices at many times in 2020.
“Now, we are going to see the world coming out of the pandemic in the low production cycle (in Brazil), and a demand that does not cease, and quite the contrary, could continue to grow ... I think there are still strong emotions, and the world balance is very thin, ”he said.
According to the president of Cecafé, as the stocks of Brazil's record 2020 harvest are reduced, the capacity of the coffee world to go through “unexpected situations” without major problems is less.
“Coffee is a resilient product, neither the economic crisis nor the pandemic managed to take coffee consumption away. Imagine when to return, when we can have coffee at the office, go out to meet someone ... ”, he said, citing an expected impact of the advance of vaccination in Europe and the United States on social relations and the economy.
This scenario helps to understand, together with the expectation of a more accentuated fall than normal for a low Brazilian crop, the reason the market has changed levels.
“Last year's price base was between 90 and 110 (cents per pound). Today, when it goes down, it goes down to 120, it is between 120 and 140, we are closer to 140. The new base that was formed suggests that we are in a new reality ”, he considered.
In the basket of “strong emotions”, he also placed the proximity of winter in Brazil as an element, which always raises concerns about frosts - even if in recent years there have been no relevant problems. And also possible effects of the unfavorable climate for the production of 2022.
An eventual rebalancing of the exchange rate in Brazil would also give the market strength to rise "a little" in New York, as this would reduce gains in reais at a time when Brazilian producers are going to reap a crop that may fall up to 30.5% in 2021, according to the initial numbers of the National Supply Company (Conab).
MOMENT OF CAUTION
Despite the concern about a more pronounced drop in arabica production, Rueda said that Brazil is prepared to face this cycle, citing that the production of camphor coffee (conilon or robusta) is expected to grow. He also recalled the large inventories generated by the past harvest, which serve as a mattress for the world to cross part of the period.
"It should be enough to reconcile the needs of the market, but we are studying, it is a moment of caution", he commented.
The country's total coffee exports are on track to break a record in the crop year until June, after having grown by more than 10% in the first quarter, to 11 million bags, but the president of Cecafé stressed that this pace will not last. whole year.
“The second quarter should also be very similar (to the first), but from the third quarter on, it will match the past season with the new season. In the last quarter, a new reality will arrive, which will accompany us until next year ”, he said, in reference to the reduction in inventories.
According to him, the intensity of this supply reality will depend on how strong the effect of the drought will be on the Arabica harvest that begins to be harvested normally in May.
He agreed that some major players, such as Cooxupé, which estimates an increase in shipments in 2021, may even increase exports this year. But he reasoned that this should not be the situation for the sector as a whole.
Meanwhile, the country is dealing with strong demand, with sales even to competing countries such as Colombia and Mexico. These nations have a strong coffee industry and use Brazil's grain not only domestically, but as a raw material for products that are re-exported to countries like the United States.
By Marcelo Teixeira and Roberto Samora; Editing by Maria Pia Palermo
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