The lack of rain and high temperatures in the main producing regions of Brazil continued to punish crops and worry producers. The water crisis has been supporting prices. The week ended with an appreciation of +1,200 points, with Dec-21 closing @ 194.35 cents/lb!
Conab published its third crop estimate reducing Brazilian production by -1.90 million bags. The total estimated production was updated to 46.90 million bags (still above Archer's forecast but, in our opinion, closer to reality). According to Conab, Brazil will produce 30.70 million bags of Arabica coffee and 16.10 million bags of Robusta coffee.
Unfortunately Conab has not mentioned what was the carryover stock from 20/21 to 21/22 harvests. We know that the carryover stock cannot be "zero" because both the local industries and the trading companies carry stocks/position to cover their needs and commitments during the initial months of the harvest.
Considering a carryover stock of 8.250 million bags (approximately 3 months of Brazilian domestic consumption - July/August/September - and 1 month of exports) and replicating this same estimate for the carryover stock from crop 21/22 to crop 22/23, the market will be frightened! According to Conab numbers, Brazil will be able to export only 23.90 million bags in the next 12 months (on average only 1.99 million bags per month)! And this has nothing to do with the lack of containers! But the lack of product!
Considering Archer's figures, for a total production of 44 million bags and the same assumptions above regarding carryover stock and domestic consumption, then Brazil should export only 21 million bags over the next 12 months (approximately 1.75 million bags per month)!
Considering that in the 20/21 crop year Brazil exported 46.5 million bags and that in the 21/22 crop year it should export only 21 million bags, we believe that the market will have to adjust via price, consumption of certified stocks and/or reduction in consumption through price increases! Where will the world find +25.5 million bags to supply the demand?
Have the "funds+speculators", the domestic industry and the trading companies finally woken up? Based on the latest CFTC* report, the funds+ speculators have returned to buying and ended the period buying +41,176 lots (adding +2,552 lots to the position). The local industry and the trading companies are "in the market" looking for offers and supporting prices.
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