Drought has slashed Brazil’s arabica coffee crop this year below 30m bags for the first time in 12 years, leading analyst Judy Ganes said, foreseeing a hangover on 2022 production as well thanks to the extent of the dryness.
Ms Ganes - president at J Ganes Consulting, one of the few foreign commentators to tour Brazil’s plantations evening during pandemic restrictions on travel - said that her first visit, in December suggested losses of “30%, 35%, maybe even 40%” in the plantations visited in Sao Paulo and Minas Gerais states.
A second trip, in February, revealed that while trees “did look healthier” after early-2021 rains, prospective bean counts had not improved, with no fresh blossoming from which to form cherries.
“Last flowering is last flowering. You can’t make that up.”
‘Under 30m bags’
The return of dryness in recent weeks had again worsened crop prospects – in qualitative as well as quantitative terms - in curtailing the final stage of development.
“The time for the final filling of the bean, and the sizing, is really March in April. And we had water deficits,” she told the Agrimoney webinar Market perspectives in coffee – is a perfect storm brewing?, to accompany a white paper of the same name.
The beans are “going to be small”, and the crop “under 30m bags”, a result which would, on data kept by official Brazilian crop bureau Conab be the smallest harvest since 2009.
Most other commentators forecast a harvest in the mid-to-low 30s million bags, with Olam last month putting it at 35.5m bags, and Volcafe at 33.0m bags.
The dryness had been severe enough to threaten 2022 harvest prospects too.
Although Brazil had followed up the drought-hit 1986-87 season – which many investors are using as an analogue – with a record harvest in 1988-89, such a strong recovery looks unlikely this time, given the extent of damage that trees have suffered to vegetation needed to grow 2022 cherries.
In theory, given the extent of “skeletonising”, or severe pruning, that growers have undertaken this year – in essence, giving trees a rest for a season – and with 2022 being an “on” year in Brazil’s cycle of alternate higher and lower producing yeas, output “should make a huge recovery,”
“That was sort of what the market has been banking on in terms of., that this is a one-year problem.
“But it’s actually a two-year problem,” with the 2020-21 drought so severe that it has limited the number of new nodes that trees have formed to carry the 2022 harvest.
‘Completely off the table’
The setback meant that the 2022 arabica crop might “rebound to 40m-42m bags”, Ms Ganes said, stressing that such a forecast was extremely provisional, made before trees had even flowered.
“Maybe it’ll be 45m bags,” but it was “absolutely not” going to reach the 55m bags or more suggested by the read-through from the 1988-89 recovery.
“I think that is completely off the table already and that next year’s arabica crop will be smaller than this past on-year crop that I can say with that I can say with certainty.”
Conab estimates the last on-year arabica crop, in 2020, at 48.77m bags, although some commentators believe the result was actually above 50m bags, with the bureau noted for conservative forecasts.
‘Potential for sharply higher prices’
The supply squeeze meant that the arabica market had “absolutely… the potential for sharply higher prices”, Ms Ganes said.
The extent of gains would likely be determined by the factors such as “a forced need for short covering because someone can afford their margin calls. or isn’t getting the coffee that they were promised and needs to come into the market”.
One dynamic for investors to look at was the extent of stocks held for delivery against Ice futures, and whether these were, as a source of available supplies, being drawn down.
“If you don’t have a quality 2021-22 crop, and 2022-23 is threatened, suddenly the holder of those stocks is sitting on a goldmine,” she said.
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